COVID-19 has had a significant impact on the property market with varying effects on house prices within different regions, cheaper borrowing, and lower interest rates. As an investor, the potential returns from residential property however remains an attractive opportunity.
Whether you are looking for your first investment property or to expand your existing property portfolio, many investors are considering acquiring property during the lockdown due to the number of initiatives available from the Government.
Last year, the Government announced a whole host of schemes which have made purchasing a property even more desirable. In July 2020, the Chancellor announced a temporary stamp duty tax holiday that cut the rate of stamp duty to 0% for all properties under £500,000 until 31 March 2021. For any investor, this is a substantial benefit as it can save up to £15,000 in tax.
Interest rates are at an all-time low making the cost of borrowing cheap. As it is not expected to increase anytime soon, this could be the leverage investors need to grow their portfolios and fully maximise the return on their investments.
As a property investor or landlord, it is also important to note that no mortgage interest cost can be deducted from rental income after 6 April 2020. Instead, landlords will be given 20% tax credit on the whole interest amount which will significantly impact the tax bill for higher rate taxpayers who earn more than £50,000 a year.
In this scenario, it might be more tax-efficient and safer financially to operate the property portfolio as a limited company. Should an investor wish to grow their property portfolio and benefit from the lower corporation tax rate, it might be worthwhile reinvesting the profits within the company for further development. The company can then also be used as a vehicle for inheritance tax planning.
On top of the reliefs mentioned above, considerations need to be made for the current climate. Rishi Sunak has announced that a simplification review will be taking place on 3 March 2021 as part of the Budget. It is likely that with this review, capital gains tax rates will increase making it advantageous to act now as we are certain of the rates and how best to use them to the fullest extent. After the budget, the tax landscape could look very different!
How Dunkley’s can help?
As you can see, purchasing a property in the current climate is a very attractive investment opportunity. You can not only benefit from the Government initiatives available but can also embrace the situation and help boost your business or property portfolio.
With our help, you can fully maximise the return on your property investments. Our specialist tax team have years of experience behind them and can provide the expert guidance you need to successfully purchase a property, take advantage of the initiatives available and plan for the future.
To see how Dunkley’s can help you, please contact Chloe Debiaune on 01454 619900 or email chloe.debiaune@dunkleys.accountants.