Investing in UK Buy to Let (BTL) property has long been considered an efficient vehicle to minimise taxation. However, HM Revenue and Customs (HMRC) have recently increased scrutiny on BTL investors to ensure that tax bills are not being underpaid.
There are unlikely to be any changes to BTL taxation as a result of this review although it is obviously important that investors ensure that they are enjoying the tax benefits of BTL in legitimate ways. Appointing an accountant is probably the best way to guarantee the accuracy of tax returns and keep investors away from the HMRC's prying eyes. The other benefit of using an accountant is that their fees are a tax deductible cost and so it makes sense on several levels to leave submission of returns to the professionals.
Excluding the stamp duty that may have been payable on purchase of the property, rental payments attract income tax and any proceeds from the property sale, capital gains tax. That said, there is a lot to be optimistic about for the UK BTL market in 2014. During 2013, house prices continued to rise and the average national rent increased by 4.2% with rents in Scotland, London, the North East and East of England growing at the fastest rate.
Together these factors provide attractive incentives to BTL investors wishing to benefit from attractive rental yields while watching their capital grow. Furthermore, as a result of changes to pensions made in the March budget, pensioners are now allowed to claim their pension pot as a lump sum without the requirement to purchase an annuity. It is anticipated that this will bring a significant number of new investors to the BTL market attracted by the tax efficient investment vehicle with yields significantly higher than the average annuity policy.
Despite Britain's 1.2 million landlords facing tightening tax treatment, it would appear that the appetite for BTL investment is increasing. Specialist landlord broker Mortgages for Business have predicted a 25% increase in business this year and state that "the intention of landlords to expand further demonstrates that demand for rental property shows little sign of waning". A survey of 300 clients found that 57% wanted to extend their portfolios in 2014. Of those clients already owning more than 10 properties, the proportion was higher at 66%.
It would appear that Buy to Let is still considered one of the most attractive investments available. With a large and continued demand for rental properties underpinning security, the risks are substantially reduced with an attractive upside, particularly for those wishing to earn a pension income by purchasing BTL property with lump sum payments.
In terms of the tax man, if investors are vigilant in using established methods to minimise their taxation bills the HMRC is unlikely to pursue them. The only way to absolutely ensure this is the case is to use the services of a good accountant with watertight professional indemnity in place so that landlords are shielded from any miscalculations.
- Wednesday 23 April 2014