Is it Time to Sell your Buy to Let Property?

Categories: Money

Reports suggest that around 150,000 landlords sold properties last year, citing lower profits and high taxes as the main reasons for doing so.

On average, they were facing tax bills of £22,000, but a Hamptons International report revealed that 84% of landlords who sold properties during that period still managed to make a profit.

This begs the question: is now the time to sell your buy-to-let property? And is property really still a good investment for landlords?

Why are so many landlords selling up?

There are number of reasons landlords are deciding to leave the game. One of the key reasons is the reduction in how many outgoings can be offset against tax, thus lowering profits.

But there are fresh challenges ahead, too. Due to ‘the big ‘C’’, the current outlook for the rental market is rather grim. Tenants are struggling to pay on time and the recently-announced eight-month stamp duty holiday on property purchases up to £500,000 might tempt more people to buy instead of rent.

Even before coronavirus, the profitability of the buy-to-let market has been questioned by many. It’s thought that over a third of a landlord’s return comes from capital growth rather than rental income, leading to many cashing in rather than staying in for the long haul.

5 thing you should consider as a landlord

Before you pull the plug on your rental property (or decide to hang on), there are a few things to take into consideration.

  1. Mortgage interest tax relief changes

The government has been slowly phasing out relief on mortgage interest since 2017.

From this April, you can only subtract a flat 20% of your mortgage expenses from your rental income.

  1. Changes to property residence relief

The government is changing the rules relating to private residence relief and it could hit smaller landlords in particular.

From this year, you’re no longer able to claim up to £40,000 in capital gains tax (often referred to as ‘lettings relief’), if you let out the entire property. Only the period during which you lived in the house while letting part of it would count. Keep reading to find out more about this rule.

  1. The new energy efficiency rules

The latest energy efficiency rules must be met by all landlords.

That means your properties need to have a minimum EPC rating of E, and if they don’t currently, you could face big bills to bring them up to that standard.

  1. Property prices

The housing market is understandably volatile at the moment, but prices are unlikely to grow in the short or medium term.

This could change, of course, but if you’re thinking about expanding your portfolio in 2020 or 2021, we advise conducting thorough research before taking the plunge.

  1. The economy

Brexit and COVID-19 will continue to impact the property market for some time. That means there are probably plenty of peaks and troughs ahead for landlords.

This also means buy-to-let owners will need to keep a close eye on developments and accept that profits and forecasts will be just as volatile for the foreseeable future.

So… should I jump ship?

You’d be forgiven for thinking you might as well ditch being a landlord altogether having read the points above but buy-to-let is still a solid investment for many.

We advise taking all of the points we’ve made today into consideration before making any firm decisions about your rental portfolio. If the figures still stack up and you can see a return in the long term, it might be best to stay in the game.

However, if the level of profitability simply doesn’t appear to be worth it (or, worse, there is no profitability), now might be a good time to sell up and look for an alternative way to invest your hard-earned money.

Remember: the rules have changed!

We recently noted the changes to capital gains tax on property disposals.

Now, any tax you must pay following the sale of a buy-to-let property needs to be paid within 30 days of completion. That means, if you do decide to lay off one or several properties, you’ll have to pay the capital gains tax much quicker than in previous years.

This isn’t an easy topic to get your head around, and we appreciate you’ve probably got lots of unanswered questions. That’s why we’re here.

Get in touch with the Chandlers team and pick our brains!