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Is the Stamp duty tax a deal-breaker for new investors?

Over the last couple of years there have been many changes affecting new property investors with one being the introduction of the stamp duty land tax of 3%. This has put some investors off because they feel that extra money means that investing is no longer a viable strategy.

 

The purpose of this blog is to give our opinion on this and give a varied view on the subject.

 

The Tax in general.

 

There is no question that this extra tax is frustrating. It seems that the government has been attacking landlords a lot of the last few years and is trying to make profits erode and become less and less. We must think however of the long-term game and see investing as a medium to long term plan, and if we do then this tax can be factored in and not affect us as much. Here’s why…

 

 

 

Let me take you back to 2010 and a property I purchased back then for 85k. Now I recently had this re-valued for mortgage purposes and it valued up at 155k which was in the region of the figure I thought when I put the application in. Therefore, for arguments sake and considering buying fees, re-mortgage fees, and the refurbishment, it means I have made in the region of £55000 on the project over the 7 years. I have also had about £3500 a year in rent as well meaning that the property has made about £72500 in total profit. Now let’s fast forward to today and say I bought the same property (obviously the prices will be higher today but just for illustration purposes). If I had to pay an extra 3% stamp duty I would have had to pay another £2550 in fees when I purchased the property. So instead of £72500 profit I would have made £69500 over the last 7 years. Is this really that bad?

Now I always invest for yield and cashflow and not capital growth as I don’t want to rely on that. But even if we had no capital growth at all which is unlikely, then we would still be getting the £3500 a year which then over the 7 years we would still have made around 15k profit after stamp duty, which is still a healthy return.

 

There are many other ways to increase the cashflow such as HMOs, and if you focus on Commercial property there is no stamp duty, but I think this still highlights that even with the stamp duty there is still a good opportunity to achieve substantial returns through rental property and so we would definitely urge people to look at property investment for the long term, when making a decision on whether to invest.

 

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