This week, Theresa May announced that she would trigger Article 50 next Wednesday and formally commence Britain’s withdrawal from the European Union. This will result in a two-year negotiation period between Brussels and Britain, providing greater clarity to property investors on what the future will hold for the real estate market.
In a fortnight’s time, Britain will also be welcoming in the 2017/18 tax year. While traditionally an important date for investors, April 6 takes on added significance due to the number of structural changes to the tax system that will come into force. These changes have been announced over the course of the past 24 months under the previous Chancellor, George Osborne, and have significant implications for property investors.
From April 6, landlords in the UK will no longer be able to deduct mortgage interest payments before calculating their tax bill. By 2010/21 they will instead get a tax credit equivalent to 20% basic-rate tax on this amount. This will affect higher-rate and top-rate taxpayers who could previously claim tax relief at 40% and 45% respectively. The tax change will reduce the income of landlords who pay higher rates of tax, and will come into affect over the next four years.
In addition to this, other notable reforms are listed below.
- For property left in a will, there will be a new “family home allowance” worth £100,000 per person, in addition to the existing £325,000 per person allowance
- The threshold for paying the higher-rate income tax will rise from £43,000 to £45,000
- The amount that can be saved tax-free every year into an Individual Savings Account will jump from £15,240 to £20,000
- Corporation tax will be reduced from 20% to 19%
Chancellor Hammond’s 2017 Spring Budget was noticeably light on any government reform directed at the UK property market. This omission was not entirely unexpected – in early February the government launched its housing white paper which outlined a broad range of reforms it plans to introduce to help reform the housing market and increase the supply of new homes. While focusing specifically on the construction of new properties, the white paper overlooked the next generation of investors seeking to enter the property market. There was no indication of investors being relieved of stamp duty land tax for additional property purchases, meaning that anybody purchasing an additional property in Britain will be required to pay a 3% stamp duty land tax surcharge on top of standard stamp duty tax rates in the 2017/18 tax year.
At this transitional point in Britain’s economic history, the property market presents significant investment opportunities in commercial and residential real estate. Taking into account these new tax reforms, MFS will continue to provide regular and in-depth insight into the key industry issues investors need to be aware of. Next week, MFS will be officially launching the Property Heatmap – an online infographic profiling the residential real estate hotspots in the UK, with a specific focus on London and the home counties. This interactive infographic pinpoints the established and emerging property markets in the UK, guiding investors seeking to expand their property portfolio.
In the interim, speak to a member of the MFS team to find out what the 2017/18 tax year means for your property investment strategy.