Will buy-to-let landlords lose money in 2017?
Buy-to-let landlords are being squeezed. Taxation changes for buy-to-let landlords in the UK will start being phased in from April this year. For some people, the tax burden may double or even triple as a result. Tax relief has been stripped from the programme and some landlords currently turning over a profit may wind up losing money instead.
According to HM Revenue & Customs, only 20% of landlords will pay more tax as a result of the changes. However, the National Landlords Association think the number is closer to 44%. If interest rates rise, things will become even stickier for landlords.
The tax changes only apply to people who own rental properties in their own name. Last year, some 100,000 landlords purchased properties through limited companies to avoid the higher taxes, more than double the number from 2015. Experts believe that this loophole will be the next to be closed. Also, limited companies must pay corporation tax, so this scheme doesn’t necessarily suit everyone.
Commercial Property might be the solution
So, it’s hardly surprising to hear that the number of buy-to-let investors moving their money over to commercial property has increased threefold over the last three years. The popularity of investing in offices, restaurants and shops has increased. While commercial property can offer higher yields, lower overheads and a more straight-forward way of investing, there are some big differences between the two sectors that potential landlords should be aware of.
Buy-to-let landlords: is investing in commercial property right for you?
Commercial landlords have different responsibilities to residential landlords. Avoid any legal issues by ensuring you’re aware of these obligations. Different legislation governs commercial transactions, such as rent review, buildings insurance and security of tenure for tenants.
In addition, commercial property mortgages operate differently to residential mortgages. In fact, the entire commercial property market may feel like foreign territory for a while, and it can require a mindset shift from investors.
Commercial property prices are also a consideration.
Small offices and independent stores may be in the same ballpark as some residential properties. However, larger properties, like shopping centres, office blocks or warehouses, may require smaller investors to join collective investment schemes.
There are definite upsides however. Commercial leases are often longer than residential leases. Also, some contain clauses that guarantee rents only rise over time, not decrease. Also, commercial tenants normally bear the costs of repairs and maintenance instead of landlords.
It pays to have an experienced agent by your side, who can help you navigate the changes and challenges that you’ll inevitably face. At TA Property, we have 20 years of experience behind us. We’ve worked successfully with more than 200 clients from diverse backgrounds.
TA Property specialise in the London and Essex commercial property markets, whether you’re looking to sell, buy or rent. Please contact us and let’s have a chat about your needs and if commercial property investment is the right step for you.Tags: buy-to-let, commercial property, HMRC, London commercial property, taxation