Stamp duty surcharges have undoubtedly made some of those investing into the SE England property market think twice. The 3% SDLT surcharge, which applies to second properties, was introduced in 2015. This new tax must be added to the new restrictions on loan interest write-offs, and wear and tear expenses, both of which have begun to affect UK higher-rate taxpayers now.
Whilst these amendments undoubtedly affect future landlords’ profits, the property price rises of the last decade have enticed many to enter the London and SE England region’s market. Those with high borrowings have not been shaken out by climbing interest rates; quite the reverse in fact. The impact of extra EU health and safety laws has been minimal. Landlord taxpayers may now be looking at low income yields when compared to the property’s UK market value. But even with nominal property improvements (often partially funded by HMRC for those 40% taxpayers) England’s house prices in 2017 are between 40% and 70% higher than in 2007. London prices of £700-800 per square foot are currently perceived as normal. Many older British taxpayers are addicted to property, having seen purchase prices of £100-200 per square foot during the 1980’s and early 1990’s as ordinary.
Investors must make their own decisions on property prices, and with near zero bank deposit interest rates some may struggle to see a viable alternative home for their UK property equity.
Wear and tear annual allowances, previously very dear to the heart of the furnished property landlord, have gone. Replacement of furnishings, fixtures and kitchenware will now be ordinary deductible expenditure. Interest on borrowings to purchase a property is restricted for higher and additional rate taxpayers and will be ultimately restricted to the basic rate of income tax. Other tax-allowable expenditure includes using home as office expenses, necessary travel to the property, admin., computer and mobile costs incurred etc. Everyday property running costs, from gas and garage repairs to gardening, are always deducted.
CGT on property gains remains at 28% which is generally viewed as an attractive rate to pay. CGT exemption allowances of £11,300 per annum can lower the overall CGT rate on sale. Existing capital losses should be borne in mind, should any exist.
Haggards Crowther will be pleased to advise on your overall property tax situation.