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BUYING A SECOND PROPERTY
IS THIS STILL A GOOD INVESTMENT?
Land
values typically increase in value more than most other investments and
particularly at times of low inflation.
However it is important to count the costs before going ahead.
TAX
Stamp Duty Land Tax (SDLT) rates have recently increased
for second and subsequent properties.
The rates are now less favourable than for purchases of ones only or
main residence. The rates are 3% up to
£125,000.00, 5% between £125,000.00 and £250,000.00, 8% between £250,000.00 and
£925,000.00, 13% between £925,000.00 and £1.5 million and 15% for properties
over £1.5 million. The rates are
therefore consistently 3% above the existing SDLT rates for first or only properties.
Capital Gains Tax (CGT) is chargeable on the increase
in value when a second or subsequent property is sold. Reliefs are available e.g. for gifts to
spouse, civil partner or charity or if the property is a business asset
(although the reliefs for wear and tear have been replaced by a less favourable
relief), or if the property is occupied by a dependent relative.
Owners
of a portfolio of properties they are likely to pay Income Tax rather than CGT.
MORTGAGES
Generally
speaking lenders requirements have become more stringent in recent years,
although it is worth shopping around for the best deals available. Buy to let mortgages are slightly more
expensive than those offered to owner occupiers and set up fees can be
considerably higher. In addition
mortgage interest relief against income tax is now being scaled down as from
2017.
RENTING TO
INDIVIDUAL TENANTS
Costs
will include the following:-
1. The costs of creating Tenancy Agreement documentation and
instructing Managing Agents if required.
3. Property maintenance costs and compliance with statutory
obligations and
procedures, such as Gas Safe Certificates, arrangements
for rent deposits and EPC’s;
4. Statutory requirements as to the rent that can be charged
and the rate at which rent can be reviewed or increased.
SUMMARY
It is advisable to check that
the return on investment property outweighs
the expense. Investment in land must be regarded as a long
term advantage rather than a
quick source of funds. The rent should exceed the expenses and the
increase in value should
exceed the capital outlay and
taxes payable.
The value of the owner’s own
management time should also be take into consideration.
In short investing in second
or subsequent properties can still be profitable but it is important
to do the sums before
committing yourself.
For further information on tax
see the government’s website www.gov.uk/tax-sell-property.
For general advice our office
can be contacted:-
ALISON FIELDEN & CO
SOLICITORS
THE
GATEHOUSE
DOLLAR
STREET
CIRENCESTER
GLOS GL7 2AN
TEL:
01285 653261
EMAIL: alison@alisonfielden.co.uk
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