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Is Property Investment a Good Option? It Depends.

Property has traditionally been seen as a reliable long-term investment in the UK. Like any other investment it comes with an element of risk, as well as legal and tax implications.

If you’re new to property investing it’s essential to have professional advice and support. The consequences of the decisions you make will stay with you for a long time.

Investment Options

The most common types of investment opportunity are:

  • Buy to let.
  • Development land.
  • Property renovation and development.
  • Houses in Multiple Occupation (HMOs)
  • Student property

Buy To Let

Buy to let is a popular form of investment. If you’re funding the purchase with a mortgage you need to choose the most appropriate product for your needs. As with regular mortgage products there are fixed, variable and tracker rate options available.

To obtain a buy to let mortgage you must already be a homeowner. Rates and deposit requirements are generally higher than for normal mortgages.

Some investors opt for interest-only mortgages in the expectation that rental income will be greater than the interest payable and other expenses, and that the property will have grown in value at the end of the term and can be sold for a profit.

Legal aspects to consider include whether there are covenants that prevent the property being rented and having legally-compliant tenancy agreements in place that protect your interests.

There will be a Capital Gains Tax liability if you sell the property at a profit greater than the defined HMRC allowance at a future date.

There are strict requirements to comply with when letting out a property once you have purchased. 

Renovation and Development

If you buy a property with the intention of improving it and either selling it for a profit or renting it out, the tax implications need careful planning. If, for example, you plan to rent out the property as a holiday let following the renovation you may be able to claim tax relief for the renovation costs.

Some types of work will be considered by HMRC as repairs and, therefore, a revenue expense. More major works such as extensions will be considered as a capital expense. The tax relief available in each case is different and needs to be considered carefully.

Development Land

Development land transactions often involve large sums of money. There are many legal and potential planning consent issues to consider alongside the tax implications, particularly if the value of the land is expected to increase.

Student Property

Becoming a student landlord brings with it a range of legal responsibilities, particularly relating to property maintenance and fire safety. It’s helpful to take professional advice regarding your responsibilities and tax liabilities.

HMOs

Depending on the number of tenants renting a room will dictate the size of the HMO and whether it needs to be licensed with the local authority.  Large HMOs may well need separate planning permission so you will need to consider this if you are looking to extend an existing HMO. 

PowellsLaw has helped many individuals negotiate the legal and tax implications of property investment. CallPowellsLaw on 01934 623 501

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