In 2018, is a Buy to Let property still a great investment? Buy a place, rent it out and earn an income. Sounds appealing.
Until just recently, investors were able to claim tax relief on their mortgage payments and expenses related to renting their place out. Since April 2017, however, that situation changed. Buy to Let landlords have been allowed less in tax relief and will be able to claim less on a sliding scale over the next few years. Also, stamp duty has been raised to 3% on property purchases.
Having said that, the alternative is sinking money into pitifully low interest rate savings accounts or gambling on a moody stock market. Buying a property is very attractive right now with low mortgage rates and then there is the opportunity for its value to increase in years to come. How long interest rates stay so low is a matter of conjecture, all the same, and so there is the consideration of higher mortgage repayments later on.
Naturally, it’s worth knowing all of these things before you dip your toe. So, how about the way the tax relief system is changing? What’s happening with that?
In the 2017-18 tax year, you will be able to claim less – 75% of your mortgage tax relief (i.e. 75% of your mortgage repayment and expenses).
In the 2018-19 tax year, you will be able to claim 50% of your mortgage tax relief. In the 2019-20 tax year, 25% of your mortgage tax relief.
Finally, from April 2020, landlords will no longer be able to deduct their mortgage costs from their rental income. Tax will be charged on the whole takings. You’ll instead receive a 20% tax credit for your mortgage interest. This means you will be able to claim simply 20% of your mortgage repayments.
Higher rate taxpayers presently pay twice the amount on rental income tax as a basic rate taxpayer. In 2020, if you’re a higher or additional-rate taxpayer you won’t get all the tax back on your mortgage repayments, as the credit only refunds tax at the basic 20% rate rather than the top rate of tax paid.
It’s helpful to know that Buy to Let investment is still popular (especially if you have a large deposit). In any event, it’s always good to talk to a reputable property management service. Before you do anything else, come and talk to us and we’ll show you how we can help let your property.