In the first quarter of 2022, UK landlords purchased almost £8.5 billion worth of buy-to-let properties. Fast-forward to the middle of the year and the number of landlords choosing to sell up has risen by 13% from July to October.
There are thought to be around 2.7 million landlords in the UK. Now, despite a booming rental market, we face a potential exodus of private landlords. Changes to taxation, increasing mortgage rates, the rising cost of living and impending regulatory changes combine to make property a less attractive investment.
So, if you’re a buy-to-let landlord thinking of selling up, here’s what you need to know.
1. Consider creating a limited company
If you pay a higher rate of tax, it could be possible to reduce your tax bill by creating a limited company. This would mean paying 19% corporation tax on your rental income, rather than 40% income tax. It also means that you can control your own personal income by choosing when to withdraw profits from the business.
However, creating a limited company can be a costly exercise, particularly if you don’t own your rental properties outright. HMRC sees this as both a purchase and a sale, meaning you could be liable for both capital gains tax and stamp duty, even if you don’t release any cash.
If you are considering a buy-to-let investment, or would like to find a way to keep your existing properties, it is worth speaking to our Accountancy team about the potential of creating a limited company.
2. Beware changes to capital gains tax
If you are set on selling up, there could be an advantage to a quick sale. The housing market remains stable at the moment, though predictions of a drop in the value of property continue. Plus, we know that changes are coming to capital gains tax.
From this coming tax year (2023-2024) the annual exempt amount for capital gains tax will fall by half to £6,000. In the year following, this will decrease by another 50% to £3,000. This means you’re likely to pay significantly more tax on any profit made from your property sale.
3. Know your options
If you’ve decided that buy-to-let is no longer a worthwhile investment, make sure you consider all of your other investment options. For example, it may be possible to change your property from buy-to-let to holiday let or invest in holiday lets as an alternative. You may want to consider a new stocks and shares ISA, or other tax-efficient options.
There are hundreds of different investment options out there, each with varying levels of risk and anticipated ROI. We are also increasingly finding that our clients are choosing to diversify their investments to protect against uncertainty.
4. Get advice, asap
If you’re in any doubt at all over your buy-to-let properties, we recommend getting in touch with us as soon as possible. All of our initial appointments are fee-free, so if we work together and determine that the best thing for your money is to keep it where it is, it won’t cost you a penny.
If you decide to sell some or all of your properties, we can help you to manage this in the most tax-efficient way. We’ll talk you through all of the alternative investment opportunities available to you and help to make sure you meet your financial goals, whether you’re planning for retirement or building a nest egg for your family’s future. Book an appointment today.
