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Buy­ing a sec­ond prop­erty has be­come so pop­u­lar that the gov­ern­ment has now seen this as a way to bring in ex­tra rev­enue via taxes. Sorry, I mean look af­ter first-time buy­ers (by tax­ing in­vestors).

There have been changes to the Stamp Duty Land Tax (SDLT) rates, as those who have been look­ing at a buy-to-let as a po­ten­tial rev­enue stream may be aware. In a way this is sim­i­lar to VAT which is charged on goods and ser­vices in that you will pay tax, based on a per­cent­age of the pur­chase price. Un­til re­cently there was no charge if you bought some­thing un­der £125k (if only you could find some­thing lo­cally for that kind of money!) Now, if this hap­pens to be your sec­ond prop­erty, be it to live in or to let out, you’re now up for 3% of the pur­chase price in tax (more if over £125k). If you sell the first and meet cer­tain con­di­tions; you might get some or all of your money back. There are twists to this, but not many, and in lay­man’s terms if you buy a sec­ond prop­erty and keep it, there’s no way around it.

The next squeeze the gov­ern­ment has levied on in­vestors is the re­stric­tion of tax de­ductibil­ity on loan in­ter­est. Un­til re­cently, if you were in the 40% tax bracket, £1,000 in bank in­ter­est would have shrunk your tax bill by 40% (£400). By 2020 that will be re­stricted to 20% or £200. Again, there are twists to this and space lim­its me from go­ing into this in more de­tail. That and the like­li­hood that it will send most read­ers to sleep.

Any cre­ative tax ad­viser would look at this and say; ‘Hey! let’s wrap up your pur­chase in a lim­ited com­pany.’ Great idea; how­ever the gov­ern­ment have now got a neat lit­tle mech­a­nism called An­nual Tax on En­veloped Dwellings. This is an an­nual tax mainly on lim­ited com­pa­nies who own res­i­den­tial prop­er­ties over £500,000. Again, there are twists – well they couldn’t pro­duce a tax that was sim­ple – that would be far too con­ve­nient.

This broadly means that prop­erty in­vest­ing – and by that I don’t mean trad­ing (buy, ren­o­vate, sell) is not as good as it used to be. How­ever, be­cause it is in­vest­ment in­come, it still car­ries no Na­tional In­sur­ance li­a­bil­ity on the prof­its, so it still stacks up quite nicely for the small, sole trader in­vestor when com­pared to trad­ing in­come.

In sum­mary, all of the in­for­ma­tion above is only part of the pic­ture; if you’re look­ing at this (I know; I would say this, but) get ad­vice. Caveat emp­tor is an an­cient ex­pres­sion but it is still as rel­e­vant in to­day’s land­scape as it ever was.

01603 630882 [email protected]­wichac­coun­tan­cy­ser­ www.nor­wichac­coun­tan­cy­ser­

Jon Hook, the le­gal ex­pert from Nor­wich Ac­coun­tancy Ser­vices

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