By Jo White, Tax Consultant, Spofforths
With the constantly-evolving tax landscape it is more important than ever to ensure you are aware of all the factors that could impact you as a landlord.
One factor to consider is whether your property is likely to grow in value. From a tax perspective, capital growth will result in a possible Capital Gains Tax (CGT) liability. Unlike the sale of other asset types, residential property still attracts a CGT rate of 18% or 28% as opposed to 10% or 20%.
If you are looking for a higher income yield; assuming the property is owned by an individual, then Income Tax will be payable on any profit generated. The higher the yield, the higher the tax liability is likely to be. With the changes to mortgage interest relief coming into effect from 6 April 2016, as a landlord you will need to assess what your increase in tax is likely to be and whether steps need to be taken to ensure that you end up with a positive cash-flow position, following any tax payment.
The length of your property investment may also have a bearing on the decision as to the type of property you invest in, whether looking at value or the possibility of non-residential property. For example, purchasing a £200,000 residential property will now increase the Stamp Duty Land Tax liability by £6,000 if you are not replacing your home. This could be an acceptable cost to bear for a longer-term investment strategy but not when you are expecting to hold the property for a shorter length of time.
With tax costs increasing and your pre-tax cash-flow potentially remaining unchanged, it is important that you are aware of the proposed changes to give yourself time to maximise your financial position.
For more information on how your property business may be impacted by new tax liabilities, please contact Jo White at firstname.lastname@example.org or on 01403 253282.
Spofforths is the trading name of Kreston Reeves LLP