As we enter 2023, many investors are looking for ways to reinvest their capital into the London property market. With recent changes in tax laws and pension thresholds, it can be difficult to know where to start. In this article, we will explore some of the key considerations for those looking to reinvest in London property and how to maximize their return on investment.
Tax Implications and Recent Changes
In recent years, the UK government has introduced several changes to tax laws that have impacted property investors. The most significant of these is the reduction in tax relief for mortgage interest payments. From April 2020, the relief has been phased out, meaning that landlords can no longer deduct all of their mortgage interest payments from their rental income when calculating their tax liability. Instead, landlords receive a basic rate tax reduction on their mortgage interest.
Another key change is the introduction of a 2% Stamp Duty surcharge for non-UK residents purchasing property in England and Northern Ireland. This surcharge was introduced in April 2021 and applies to purchases of residential property over £40,000.
Pension Thresholds and Recent Changes in the March 2023 Budget
In the March 2023 Budget, the UK government announced several changes to pension thresholds that could impact property investors. The lifetime allowance, which is the maximum amount that can be held in a pension fund without incurring additional tax charges, has been increased to £1.1 million.
This change could make it more attractive for investors to use their pension funds to invest in property. However, it's important to note that investing in property through a pension fund can be complex, and investors should seek professional advice before making any decisions.
Rental Prices and Expected Yields for Properties in London
London remains one of the most expensive cities in the world to live in, and rental prices reflect this. According to a recent article in The Times, rental prices in London have risen by 3% in the past year, with the average monthly rent now standing at £1,743.
Investors should also consider the expected yield on their property portfolio. According to data from Foxtons estate agents, the average yield for a one-bedroom flat in London is currently 4.4%. However, yields can vary significantly depending on the location and type of property.
Interest and Mortgage Rates
Interest rates have remained low in recent years, making borrowing money to invest in property more affordable. However, investors should also consider the impact of potential interest rate rises on their mortgage payments.
According to The Telegraph, some lenders have already begun to raise their mortgage rates in anticipation of interest rate hikes by the Bank of England. Investors should factor in potential rate rises when considering their investment strategy.
What Type of Property is in Highest Demand?
In terms of demand, properties in central London remain the most popular, particularly among young professionals and foreign investors. However, with the rise of remote working, properties in outer London boroughs and commuter towns may become more attractive to renters.
Investors should also consider the type of property they are investing in. According to data from RICS, there is currently strong demand for rental properties in the Build to Rent sector, particularly in London.
Do You Wrap Your Portfolio into a Business, or a Personal Investment?
Finally, investors should consider whether to wrap their property portfolio into a business or invest as an individual. Incorporating a property portfolio into a limited company can have tax advantages, such as lower corporation tax rates and the ability to offset expenses against profits.
However, setting up a limited company can be complex, and investors should seek professional advice before making any decisions.
In conclusion, investing in London property in 2023 can be a lucrative venture for those who are well-informed and make strategic decisions
