Many residential property investors and developers feel they are unfairly the focus of Government headline grabbing policies and rhetoric resulting in changes to the taxation system in respect of all aspects of residential property investment including acquisition, sale and the taxation of ongoing profits.
As well as tax changes there are changing attitudes and approach of lending institutions making obtaining finance potentially more difficult.
So is this the end of buy-to-let investments as we have known them?
At Menzies we wanted to take a snap shot of our clients and contacts views of the changes and how this may impact their future investment decisions. Below is a summary of the key results:
Taxation of gains arising on the sale of residential properties
Reduced capital gains rates were announced in the 2016 Budget but capital gains arising on the sale of residential properties were excluded from these reduced rates. Our survey asked whether this was right or wrong.
We asked how the various tax changes will impact the buy-to-let market and what impact this was having on future plans.
80% of respondents believed that investment in a second property as a ‘pension’ would reduce. But interestingly only 35% believed the changes would result in more houses being available for first time buyers, obviously one of the Governments objectives.
The results were also almost evenly split as to whether the changes will or won’t have any impact on property inflation.
65% of respondents also saw further changes to the tax rules being announced whether this was to modify the rules as they are not having the desired impact or increasing the tax burden on investors even further. Therefore there is clearly uncertainty and nervousness for the future.
That said 73% of those how currently have investments were intending to stay in the market and perhaps even increase their portfolio. A further 9% wanted to remain in the market but perhaps restructure how they held their portfolio. Therefore only a relatively small percentage, 18% were looking to exit the market.
One way to consider restructuring is to incorporate but this may or may not be the answer, please see our previous article on this.
In respect of future investment 40% said that changes to taxation would most put them off future investments and 35% thought the difficulties in obtaining finance would cause them to potentially not invest.
As the yield from property may reduce when interest rates do eventually rise the attraction of alternative investment opportunities may also become more favoured.
What does the future hold for the buy-to-let market?
In summary it probably is far too early to tell what the changes to taxation and lending criteria will do to the buy-to-let market as a whole.
It would appear that existing investors will try to retain their portfolio’s as they are already in the market and long term property is still seen as a good investment. When this is considered together with a potentially high tax charge on exit it means they will not look to sell properties and hold on for the future capital growth.
New investors will however consider whether property is still likely to offer the best investment return and what alternatives there are which may be more attractive and less open to further tax changes. New investment in the sector may therefore slow down.