Is this the end for the ‘Buy to Let’ Landlord?

The great landlord rental exodus that is currently being experienced in the UK has been triggered by a complex mixture of government policy and wider economic conditions.

But one thing is clear. Owning a buy-to-let, once seen as a copper-bottomed way to earn an easy, passive income, is rapidly becoming a financial albatross.

History of the Decline in Property

The first hint of lean times for landlords came in 2016, when buyers of ‘additional properties’ to their main home were hit with a 3 per cent stamp duty surcharge.

A year later, in 2017, HMRC began stripping landlords of the right to claim tax relief on their mortgage interest payments.

Meanwhile local councils began introducing registration and licencing schemes for landlords, adding to their administrative burdens.

More recently, a combination of rising interest rates and increasing maintenance have trimmed even more fat off BTL profitability. The average rental yield in the UK now sits at 3.63 per cent, according to Seven Capital – barely more than interest rates on the high street.

Figures show Britain’s rental sector is losing homes on a major scale, while agents across the country report an influx of instructions from small-time landlords who’ve decided to invest elsewhere

And this year (2023) has brought more pain for landlords. Their capital gains tax allowances being cut in April, followed later in the year by an overhaul of rental rules, featuring indefinite tenancies and the end of ‘no fault’ section 21 evictions.

The Future for Property Investment

Looming on the horizon is another potentially costly set of regulations. In 2020 the government unveiled plans for new energy standards for rented homes. By 2025, it announced, all newly rented properties would need an EPC rating of C or above. All rented properties would need to comply by 2028. Energy efficient rental stock is, of course, a good thing. But the average EPC rating for a UK property is D, and bringing a period house up to scratch can be extortionately expensive.

The culmination of these changes has let to property very much falling out of favour for those seeking an ‘income’.

For well-informed landlords, there has been an interesting transition away from property, to the use of more tax efficient investment vehicles as an income producing tool.

This decision has been bolstered by the fact that property income being highly taxed regardless of whether the property is being held personally or in the company name.

The investment vehicle of choice, for the more astute investor has now become the Investment Bond.

What is an Investment Bond?

The Investment Bond, is a lump sum investment, which is held in a bond structure, enabling investors togain exposure to a broader range of sectors, including technology, healthcare, and renewable energy, this spreads any investment risk and reduces reliance on a single asset class.

Importantly, the investment provides a tax free income of up to 5% each year back to the investor, while there is no upper limit on the level of investment, the 5% amount can be tailored to suit the level of income required by the investor.

This also appeals to investors who require want to avoid burdensome financial administration because the income received from an investment bond does not need to be included in a tax return.

For those concerned about their potential inheritance tax liability, the Investment Bond can be placed into Trust so that on death between 3 and 7 years of making the investment, the IHT liability can be reduced or even alleviated completely.

It is for these reasons that the shift away from property into these tax efficient vehicles is now becoming so widespread.

Transitioning from Property to Investment Bonds:

The transition from property investment to investment bonds represents a paradigm shift among property investors in the UK.

Recognizing the advantages investment bonds offer, property investors in the UK are actively liquidating their property holdings and redirecting their funds into investment bonds. This transition requires careful consideration and strategic planning.

By capitalizing on the benefits of investment bonds, property investors can foster a more diversified and resilient investment portfolio, ultimately paving the way for long-term financial growth and security.

If you would like to discuss your options, please contact me at Calendly – Marc Burman

The value of investments may fall as well as rise and a policyholder may not get back what they put in. This information is based on my interpretation of the law and HM Revenue and Customs practice as at June 2023. I believe this interpretation is correct, but cannot guarantee it.

Tax relief and the tax treatment of investment funds may change.

The value of any tax relief will depend on the investor’s individual circumstances.

This is not personalised advice, you should seek independent advice taking into account your personal circumstances.