In Focus: Tax  

How buy-to-let lost its appeal

  • To understand the effect of tax changes on buy-to-let investment
  • To be able to explain the pros and cons of buy-to-let investing
  • To be able to ascertain for which client buy-to-let might be appropriate.
How buy-to-let lost its appeal

A series of tax changes over recent years are widely viewed as having made buy-to-let investing less attractive.

That view is still shared by the majority of UK landlords, according to recent polling from FJP Investments that found 68 per cent of respondents believe buy-to-let has become "far less attractive".

While more recent budgets have been relatively quiet on the subject of buy-to-let, the latter years of the past decade saw the introduction of a series tax reforms and regulations that, according to 71 per cent of FJP respondents, "unfairly targeted" landlords. 

With 55 per cent believing house prices will continue to rise in the next 12 months, and other tax changes potentially still on the cards, 44 per cent have indicated they will sell one or more properties in 2021. 

For Jamie Johnson, chief executive of FJP Investments, a strong housing market, coupled with the stamp duty land tax exemption extension until June on properties worth £500,000 or less, could prove too tempting for disenchanted buy-to-let investors. 

He says: “After years of reform and regulation, the appeal of buy-to-let investments is clearly on the wane.

"Property investors are confident house prices will rise, with the added cost and complexity of investing and then letting out multiple properties meaning that people are seeking alternative forms of bricks and mortar investment."

FJP Investments surveyed 1004 homeowners about their views on the UK housing market, 344 of which were landlords with two or more properties. 

For those in the latter group, the series of rule changes in recent years has indicated a clear direction of travel - that of an attempt to encourage first-time buyers at the expense of buy-to-letters.

According to the research, this sentiment is so strong that two thirds (67 per cent) said they would consider other forms of property investment that do not incur the same taxation and complexity as buy-to-let and second home purchases.

“With the stamp duty holiday extended until the end of June, and the UK inching towards an end to lockdown, the next few months will be critical for the property market", Johnson added.

Jane King, a mortgage and equity release adviser for Ash Ridge Financial Services, and a member of the Society of Mortgage Professionals, agrees buy-to-let has "definitely lost its shine", although she says this is not the case for everyone. 

The tax take

For some people, the tax changes that affect their property portfolios are far outweighed by the money coming in through rental income. 

But for King, as for Johnson, buy-to-let's lustre has diminished for the "accidental and non-professional landlords as the taxing of this particular activity becomes more and more onerous".

She explains: "First we had the loss of tax relief on mortgage interest payments, and now we have the possibility of increases in capital gains tax, which for many could be the final nail in the coffin of buy-to-let."