April is here and the stamp duty changes are now upon us. Congratulations to the many clients for whom we scrambled to get their purchase across the line ahead of the deadline! Henceforth, the 3% hike first announced by George Osborne back in the autumn will now apply on all additional property purchases. Over the next month or so, it will be a case of adapting to the changing face of buy to let – especially in light of the Bank of England crackdown announced this week. Going forward, landlords will face tougher borrowing rules in the latest bid to curb irresponsible lending.
It’s not all doom and gloom, however. The London property market continues to go from strength to strength and the buy to let sector remains enticing. Those thinking of dipping their toe into the pool may be surprised to learn of a few ways to work around the new higher rates. One such method is of particular interest to parents looking to buy property for their children. With expert assistance, it is still possible to structure and secure some fantastic investments.
There are a plethora of different reasons why people look to invest in buy to let. As we all know, the London property market can appear particularly daunting to first-time buyers, and at Enness our clients are often looking to offer a helping hand to those about to fly the nest. Getting children onto the property ladder by purchasing a BTL property earmarked for their future use is something plenty of families have been investigating in the current climate.
One example of how we can help families in this position is through the use of trusts. When a property is bought through a trust, for tax purposes the trust’s beneficiary – in this case the child – is treated as the property buyer. As long as the beneficiary doesn’t own any other properties, they will avoid paying the higher stamp duty rates.
The legislation treats trust beneficiaries who are still minors as a special case. Where the parents are trustees who own other properties, the higher rates will still apply. There is therefore an incentive to wait until the child is over 18.
There are already several good reasons for using a trust structure; it enables parents to keep control of their assets, whilst making provisions for their children. The stamp duty changes make it an even more attractive option. It is also tax-efficient from a capital gains perspective as, if the property is the main home of the child, it will qualify for their CGT relief.
Of course, it is important to be aware of other tax implications, such as inheritance tax; but the stamp duty saving is highly unlikely to be outweighed by any knock-on costs or liabilities incurred by a trust structure.
A trust is one of many routes open to those looking to plan and invest in a buy to let in the most tax-efficient way possible. To find out more, please do get in touch. We have an in-house tax team working alongside our specialist brokers who would be more than happy to talk through your options with you.