/ BUY TO LET /
“ But some people believe they don ’ t have to invest for retirement because they have a property and this is not a sensible approach ,” he adds .
“ There are big risks here with how to live off this asset . There are costs associated with downsizing and they may have to move away from family and friends .”
WIPE OUT Kerry Nelson , managing director of Nexus IFA , says there are many practical problems with property as well that you don ’ t get with most other asset classes .
“ I know someone who owns a property who did all the reference checks on one tenant , which came back fine – yet the tenant went on to cause £ 30,000 of damage ,” she says .
“ That ’ s wiped out returns for five years – you just can ’ t account for stuff like that . A lot of people who own property don ’ t have the time to manage it , so they employ a property manager – but this is yet another layer of expense .”
However , Connolly admits that despite these problems with
“ I know someone who did all the reference checks on one tenant – yet they went on to cause £ 30,000 of damage ”
physical property as an asset class , it has been quite rare that things haven ’ t worked out for his clients who make money from buy-to-let .
“ Some people haven ’ t made as much as they would have liked , but there have been no out-and-out catastrophes so far ,” he says .
“ Having said that , this has been in an environment where house prices have gone up and up and up . If they stagnate or start to go down , combined with all the raft of changes to tax on buy-to-let , there is a decreased likelihood this will still be the case going forward .”
TAXING TIMES It is these changes to buy-to-let tax rules that have made many landlords finally sit up and take notice – warnings about relying on property in retirement have repeatedly fallen on deaf ears over most of the past decade as the asset class continued to appreciate in value .
Whereas before April , landlords could offset all of their mortgage interest against rental income before tax , higher-rate taxpayers can now only offset 75 per cent of this figure – this will drop to 50 per cent next year , 25 per cent in 2019 and zero in 2020 . They will instead receive a tax credit equal to 20 per cent of their interest costs , which means higher and additional rate taxpayers are likely to pay far more as they would have qualified for up to 45 per cent tax relief under the old system .
While the landlords hit hardest by the changes will be those that already pay higher-rate income tax , some basic-rate taxpayers will be nudged into the higher-rate bracket once their rental income is included in their total earnings .
Research carried out by online lettings agency Upad suggests that the average landlord will pay 13 per cent more tax in the 2018 / 2019 financial year than in 2017 / 2018 .
Andrew Montlake , director at mortgage broker Coreco , says these tax changes represent one of the biggest challenges to landlords and have already caused the number of buy-to-let purchases to fall massively .
“ To be fair , this is what the government wanted ,” he says .
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