In his last Budget, Chancellor of the Exchequer, George Osborne, announced tax changes that will affect many of those who invest in buy-to-let property in the UK – meaning a loss in higher rate tax relief for many of them, which could have the potential to wipe out their profits entirely.
From 2017, investors who pay 40 percent (or more) tax will no longer receive a reduction for finance interest at 40-45 percent. Instead, by 2021, these tax payers will only be able to claim 20 percent; this means the average 45 percent rate tax payer who pays £12,000 interest on a buy-to-let property will lose over £3,500 each year – around 30 percent. Depending on circumstances, this could actually lose the taxpayer money – especially if interest rates are hiked up before Christmas, as expected.
Many of these investors are now looking overseas for a return on their money, known as ‘fly-to-let’ – considering the current strength of sterling and the relatively stable recovery of the property markets in many parts of Europe.
Elaine Ferguson, Head of the Resource Centre at OverseasGuidesCompany.com, explains why:
“Many investors are waking up to the loss of their higher rate tax relief on buy-to-let investments in the UK, looking further afield for profit – an overseas market that has been a bit quiet in recent times.
“We see three key reasons why overseas property could be the answer for UK investors:
Better rental returns
Even before the effects of these tax changes come into play, recent reports have already suggested that the UK should be put near the bottom of the global league table for rental returns.
Better capital gains
The economies of many popular overseas destinations have been slower to recover than the UK, so are behind in both the business cycle and property price rises. In Spain, for example, property prices have only just started rising. In France, they seem to be finally approaching the lowest they have been in many years – meaning that bargains can still be had for would-be investors, especially when you consider how strong sterling has been throughout 2015 so far.
A sunnier investment
A fly-to-let investment also provides the considerable bonus of you and your family being able to use the property for your holidays.”