Hello readers.

I am sure you’re aware that the chancellor, Philip Hammond, announced the Budget speech for 2017 earlier today. In light of the news, in this blog post we will look into the Budget’s impact to the property and housing markets.

Buy-to-let property tax

As we already know, new tax laws come into place from April that will limit landlords’ ability to offset mortgage interest against their rental income. The change is being phased in over next four years.

I have written about the matter previously and there has been pressure on the government to change these new tax laws. Unfortunately, this has not happened; no amendments were made known today by Mr Hammond.

A way of landlords being able to manage this change is to switch from sole trader status to becoming a limited company, which enables the avoidance of tax relief loss. See my blog post from January where I looked at this in more detail.

Related: Should you set up an HMO business as a limited company or a sole trader?

As things stand right now, tax is due on profits at your highest rate of income tax. But between 2017 and 2021 this system will be replaced. All landlords will pay tax on the full amount less tax relief fixed at 20%.

The result is that every landlord with a mortgage, who pays 40% or 45% tax, will pay much more – but so will some basic-rate taxpayers too, because the change will push them into the higher-rate tax bracket.

In addition today’s Budget gave no incentives to get houses sold, which has been affected by the additional 3% stamp duty levy; many experts feel this could be stifling the London property scene, creating a knock-on effect to wider areas. This especially influences the build-to-rent market.

Although a weaker pound is encouraging more foreign investment, there was also nothing new in the budget to encourage further house building.

National Insurance and tax

In the Budget the chancellor announced that there will be a National Insurance increase from its current level of 9%, rising to 10% in April 2018; it will then jump to 11% in April 2019 for those making a profit of more than £8,060.

The result is an additional rise of approximately £700 on the self-employed earnings up to £45,000 by 2019/20. This could affect sole traders who own buy-to-lets and who also may have other streams of income.

This is where it becomes more complicated. The chancellor is also looking at a reduction in the tax-free dividend allowance from April 2019 to £2,000 from £5,000, directly impacting those who pay themselves through a personal service company rather than directly as a sole trader.

He also plans to announce further changes to the personal service company and self-employed tax regime once a review is completed in the summer.

So the Budget contained very few surprises, and has given no favours to landlords and entrepreneurs in the property market. That isn’t to say it’s fatal; things are just being made a bit more tricky.

You have to keep in mind that house transactions are at a healthy rate, as are house prices. And it is still very possible to make a tidy profit as a limited company managing HMOs in Medway.

Moreover, we are seeing major regeneration in the area, which will help with house prices and rents by making the area more desirable. And with house prices at an all-time high in London, many are moving to Medway to get better value rents and mortgages which benefits property investors.

As ever, if you want to chat about property investment in Medway or Gravesham, I’m happy to hear from you. Give me a call on 07944 726676 or email me at hasan@home-share.co.uk.

And feel free to join the Property Investors in Medway Facebook Group, which is the place for landlords of Medway to swap tips and strategies with each other, as well as sharing networking opportunities.