Given the huge Budget deficit that the country is in, I don’t think the new budget is all that Bad! It could be a lot worse.
Yes it is a shame that VAT is going up to 20% which is very high but will that extra 2.5% have a real impact n your purchases? Probably not! Capital Gains Tax has gone up to 28% for higher tax payers but remember you only pay that when you sell your property. If you don’t sell you don’t pay it so that will not affect many long term buy and hold property investors!
But there was one change in the Budget which could make a massive different to all the switched on Property investors
Not many property investors know this but there is a way to massively reduce your personal income tax liability, thanks to a change in the Capital Allowance scheme a few years ago.
Basically if you buy a property that is used as a house of multiple occupation (3 or more people sharing) you can get a capital allowance against all of the “plant and machinery” in the communal areas. Usually this allowance is about 20% of the purchase price which you can offset directly against your personal income tax liability in that tax year. This means you could claim all your tax back from the tax man each year!
For example: If you buy a Multi let property for £200k you could get a capital allowance of approx £40k to offset against your income. If you PAYE income was £40k you would get back all of the Tax you had paid that year. In the 2009 to 2010 tax year you could offset up to £50k against your personal Tax. In the last Budget the former Chancellor raised this to £100k per year. This was a great strategy as it meant if you earn up to £100k income per year and you could PAY NO tax on that income by purchasing up to £500k worth of multi let properties in that Tax year. This was a strategy we shared earlier this year on one of my free tele seminars.
The Bad news in the Budget on 22nd June 2010 was that the maximum you can offset against your income for the 2010 to 2011 tax year is being slashed to just £25k.
So the important point here is that if you are thinking about buying a Multi let property in the near future make sure you do it before the end of this current tax year to get the maximum you can offset against your personal tax. You may want to wait until after 1st October 2010 as this is when the new Planning permission requirement for HMOs introduced on 6th April 2010 is being relaxed. Alternatively you could purchase existing HMOs from retiring landlords as these automatically have the planning permission.
I suppose a lesson here is that the property market is changing so fast when you learn a new strategy, as long as it is appropriate for you, then you should apply it straight away because if you sit on it and fail to take action, by the time you get around to it, the market may have changed and it may no longer be appropriate. This is why I have just completed the third edition of the Amazon No 1 Best Seller property book “Property Magic” which should be available next week. This edition has been revised for successful investing in 2010 and beyond.
It will still be a valid strategy buying multi let properties after the end of the tax year but you just won’t be able to get such a huge tax benefit as you will if your purchase them this year. So take action now!
Founder Property investors network