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LGT Vestra US

Blog post - To buy or not to buy - is investing in property all it's taxed up to be? - Sep 2016

David Lane, Partner and Techincal Director

Now that the summer is drawing to a close, and in the run up to what is believed to be an “interesting” Autumn Statement, there is the anticipation of a re-focusing on priorities including a renewed focus on personal financial and investment objectives. Particular areas of change are the introduction by the government of a number of tax initiatives and reforms in property, inheritance tax and corporate taxation.

Residential Nil Rate Band

The government intends to introduce the new, and incredibly complex, Residential Nil Rate Band (RNRB) from the 6th April 2017. Indeed Andrew Tyrie, MP who chairs the Treasury Select Committee, referred to the RNRB draft legislation as “a mess of complexity and uncertainty” and “traps lie everywhere in the detail”. So, what is RNRB? RNRB is intended to provide additional relief against inheritance tax for deaths on or after 6th April 2017 when a residence is bequeathed on death to a lineal descendant or descendants. It is certainly an area of new law that is challenging private client lawyers and a top priority for many is reviewing existing wills as well as drafting any new wills so that the RNRB is available.

Buy-to-let tax changes

For clients with investment property the tax landscape is about to change and for some it will not be good news, resulting in a significant increase in tax to be paid on their rental profits. Again, the changes are complex and will take some working through. At present, landlords normally receive full income tax relief for interest paid on a loan taken out for use in a property investment. With effect from 6th April 2017, the tax relief on interest relating to an “ordinary residential property business” will be restricted, so that from tax year 2020/21, such interest will no longer be an allowable deduction against the rental profits but instead will only be given as a 20% income tax deduction. Clients with existing property interests, as well as those contemplating an investment in this area, will need to possibly re-evaluate their tax position and perhaps in some cases look to incorporate. For some, the changes will mean that holding onto a property is no longer worth the candle and look to sell and re-invest elsewhere.

The tax landscape continues to shift and evolve offering the usual array of threats and opportunities. There are clearly limitations to the reach of “robo advice” and algorithms and the demand for the right advice and investment solutions in these more complicated areas will only increase as client scenarios becomes more complex and challenging.

 

The information presented herein provides a general update on market conditions and is not intended and should not be construed as an offer, invitation, solicitation or recommendation to buy or sell any specific investment or participate in any investment (or other) strategy. Although this document has been prepared on the basis of information we believe to be reliable, LGT Vestra LLP gives no representation or warranty in relation to the accuracy or completeness of the information presented herein.