Are you familiar with the final implementation of the Section 24 of the Finance Act (No. 2) 2015?
Oh, you don’t know what that means? This would imply that you are a recent landlord. In that case, please read below for information on this and another bombshell for property landlords/investors.
Property investors already have to deal with the gradual phasing out of tax relief on mortgage interest, which will be eliminated by April 2020. And now investors will have to face paying out more money to the taxman when they sell their properties too through additional Capital Gains Tax.
At the beginning of April next year, buy-to-let investors will be hit by yet another significant tax change aimed at reigning in the sector. Under a scheme called private residence relief (PPR), the growth in value of a second home is exempt from capital gains tax for the final 18 months of ownership. From the beginning of April next year, this will be cut to nine months. On top of this, the government is bringing in changes to lettings relief whereby homeowners can claim up to £40,000 capital gains tax protection on a main residence that was rented out for a certain period.
More CGT to pay
These tax changes mean that buy-to-let investors will face significantly higher tax bills when they come to sell their properties after April. Initial estimates suggest the average landlord will have to fork out an additional £20,000 in capital gains tax.
With this being the case, it looks to me as if time is running out for buy-to-let investors to exit the sector without incurring hefty tax charges. This implies that it would be better to exit the sector, if ‘selling up’ is your plan, now and take advantage of the capital gains tax loopholes before they disappear and the same goes with the mortgage interest tax relief.
Some studies suggest that as this relief is tapered, the majority of buy-to-let landlords will have to dig into their savings to cover the additional tax demands.
What are the alternatives?
Investors looking for other means of investing this CGT saving can look at Stocks and Shares ISA over the next seven months. This is also Tax free. Putting your money into a Stocks and Shares ISA generates tax free income as anything earned inside the wrapper is tax free, and you can invest your money in companies around the world. You may also have other options, but please explore using a suitable advisor.