Buy-to-let: strike five
The buy-to-let sector is under Treasury attack
The government appears to have taken aim at buy-to-let investors in its efforts to help "generation rent" become first time buyers.
In the last year there have been five important announcements:
1. A phased reduction in tax relief for mortgage interest down to 20% by 2020/21;
2. The replacement in 2016/17 of the 10% wear-and-tear allowance with one based on costs the landlord has actually incurred;
3. An additional 3% stamp duty land tax (and building transaction tax in Scotland) on the purchase of second properties from 1 April 2016;
4. The maintenance of higher CGT rates for residential property in 2016/17, while other rates fall; and
5. A buy-to-let mortgage market review, which is expected to curtail lending.
The buy-to-let market boomed in the first months of 2016, but reports suggest a considerable cooling in the market since. Longer term, the market's fate is unclear. The tax changes have clearly reduced the potential returns from buy-to-let investment, particularly where mortgage finance played a key role. Some existing investors may find that in a few years time, after-tax rental income may not cover their net mortgage costs.
If you are tempted to invest in the sector, make sure you consider alternative homes for your capital first.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice. The value of your investment can go down as well as up and you may not get back the full amount you invested.