Can you really ever go wrong with bricks and mortar?

PUBLISHED: 09:47 11 October 2017 | UPDATED: 09:56 11 October 2017

It's a taxing time for home owners

It's a taxing time for home owners


The long held belief that properties always go up in value and the government will encourage you via the tax system no longer seems to be true, discusses Jon Hook, from Norwich Accountancy Services.

Jon Hook, Norwich Accountancy ServicesJon Hook, Norwich Accountancy Services

Buy To Lose! Bricks and mortar – you can’t go wrong!?

The axiom that ‘properties always go up in value’ (in the long run) and that the government will encourage and incentivise you via the tax system appears no longer to apply after the recent spate of legislative changes.

The ‘Triple Whammy’ of oppressive and draconian property tax law changes meted out by the government has left many landlords reconsidering whether it is worth being an investor in residential property at all.

As well as selling up their existing properties, 84 per cent of existing landlords - the highest ever level - now say they have also stopped looking to buy new properties in the coming year and The National Landlords Association has revealed research showing that the proportion of existing landlords who intend to sell property in the next year has more than doubled since July 2015 – rising from seven per cent to 16 per cent.

Rising numbers of landlords are planning to abandon the buy-to-let market, prompting fears that rents will spiral up as the number of properties available to rent falls. Clearly this is terrible news to those renting and in targeting residential landlords the government may have caused unintended harm to some of the more vulnerable and less economically ‘equipped’ in our society.

The ‘Triple Whammy’ started with the scrapping of the ‘Wear and Tear Allowance’ for fully furnished residential properties. From April last year, this allowance was repealed which was a simple and easy to apply 10% allowance of the net rental income of fully furnished properties. Although replaced by a ‘replacement of domestic items’ allowance, it doesn’t, in my opinion, go far enough to compensate residential landlords adequately overall.

The second part of the ‘Triple Whammy’ is the 3% stamp duty surcharge on buy-to-let properties and second homes courtesy of George Osborne, the ex chancellor which came into force in April last year. Stamp duty is a disincentive to buy in itself and this has driven another nail in the coffin of aspiration! Just when you thought you had enough deposit they throw another hurdle in your way!

The final knock-out blow in this ‘unholy Trinity’ is the restriction of mortgage interest relief which commenced in April this year and over the next four years basically disallows all interest relief other than that at the basic rate – most distasteful.

The problem with illiquid assets like properties is that they cannot normally be bought and sold readily like shares or other financial instruments; it takes a long time to choose a property to buy and then once you’ve done that you have the cost of surveys and other reports not to mention the wranglings you have with lawyers to finally get the deal done.

If the government wanted to dampen the ambitions and incentives of landlords they certainly have achieved their aim maybe with unintended consequences to the people who can least afford it!..........

You can contact Jon Hook, at Norwich Accountancy Services, sponsors of this column, at www.norwichaccountancyservices.co.uk

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Caroline Culot


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