Thinking of buying a property portfolio?
With property prices holding up well and the raised threshold for Stamp Duty Land Tax (SDLT) in place until 30th June 2021, investing in buy-to-let property could seem an attractive option. The tax landscape for wealthy individuals is, however, likely to change in the near future, and investors may need to rethink the way they structure such investments. So, where should they start?
In the current uncertain economic climate, property can still provide an attractive and stable investment option compared to the alternatives. As well as delivering a capital return on any long-term increase in value, property portfolios enable investors to maintain a healthy cash position by generating rental income. With property prices holding up during the pandemic and a short window available to take advantage of the increased threshold for SDLT, it may be worth completing transactions sooner rather than later.
On 8th July 2020, the SDLT threshold for residential properties was raised from £125,000 to £500,000, with the aim of buoying the housing market, supporting the jobs of people whose employment relies on the sector and helping prospective homebuyers to get onto the property ladder. Estimated to have saved homebuyers around £817m to date, it does seem to have helped stimulate the market, with like on like transactions being higher in the latter part of 2020 than the prior year. Many investors may look to purchase portfolios before the expected cliff-edge at the end of June.
It’s important to bear in mind that due to efforts to recoup the significant debt resulting from the coronavirus crisis, the tax landscape for wealthy individuals is widely expected to change in the near future. In recent months, the Chancellor has commissioned consultations into the relief provided under the Capital Gains Tax (CGT) and Inheritance Tax (IHT) regimes. As a result, the Office for Tax Simplification (OTS) has recommended that the Government increases CGT on the sale of buy-to-let properties from 18 to 20 per cent for basic rate taxpayers and 28 to 40 per cent for higher rate taxpayers. However, it’s currently difficult to predict when any reforms will take place.
When considering investing in a buy-to-let property portfolio, it’s important to think carefully about how the investment is structured. The decision about whether a portfolio is held within a corporate entity will depend on an individual’s personal circumstances and long-term objectives. For example, is it the investor’s intention to make a short-term gain by selling the portfolio on quickly or are they looking to add to it over a number of years? Is the portfolio going to serve as a primary source of income? It’s worth noting that structuring the investment within a company may be more expensive if the individual is looking to transfer a portfolio already held personally into an existing company, as this could result in the need to pay more SDLT and potentially CGT.
Corporate vehicles structured as family investment companies can also be attractive if used in accordance with expert advice and HMRC guidelines. Corporation tax remains lower than income tax rates and they can be structured flexibly and provide a good vehicle for short and long-term legitimate tax planning.
By approaching potential portfolio investments with a plan and considering all aspects of their personal and business arrangements, would-be investors can make the most of reduced SDLT rates while ensuring their assets deliver long-term value.
Lucy Mangan is a tax partner and property sector specialist at accountancy firm, Menzies LLP.
This was posted in Bdaily's Members' News section by Menzies .
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