When it comes to investing in property, each opportunity must be considered on its own merits.

For some investors, a buy-to-let property is regarded as a tangible asset and a way to diversify if you are heavily invested in other asset classes. Property is often seen as a relatively low-risk investment that generates both rental yield and good long-term capital growth potential, while some of the costs can be offset against your rental income for tax purposes.

Stamp duty and capital gains tax are applied on buy-to-let properties and this means you may incur additional costs. Therefore, expert advice is always recommended and at Investec we work closely with our financial planning team to help private clients structure their wealth appropriately.

The availability of appropriate mortgages may affect your decision to purchase a buy-to-let property.

When deciding how much to lend you, most mainstream mortgage providers will consider the value of the property, the expected rental income and some aspects of your financial situation, such as your salary. They may not consider income earned in other currencies, or non-salaried income such as bonuses and deferred payments, which could impact how much you’re able to borrow. Investec will consider every aspect of your income structure.

Since we regularly work with investment banking professionals, we have a thorough understanding of the different elements your income might consist of, including vested stock and foreign currency. This makes us better able to assess the affordability of a property you wish to invest in.

It means we may be able to offer you a higher LTV than you expect, meaning your bonus can be used to secure a second home or buy-to-let opportunity.

Alternatively, if you’d like to hear more about how we can help you buy a home to live in, READ MORE here.

Standard rate stamp duty has been reduced to 0% on the first £500,000 paid on residential property purchases until 30 June 2021. However, on buy-to-let properties, or any other second homes, the stamp duty surcharge of 3% is still payable. This means that there will be some stamp duty to pay, but less than the amount that would normally be payable.

Between 1 July 2021 and 30 September 2021 the stamp duty threshold will be £250,000. From 1 October 2021 properties costing more than £125,000 will incur Stamp Duty Land Tax. 

In cases where there is a deadline to secure a property, efficient private banking can help. Investec has a team dedicated to the needs of investment banking professionals and this enables us to act relatively quickly to help you make the most of opportunities.

While capital gains tax is not currently payable on sales of your main home, it is payable on the sale of a second property or buy-to-let.

Current capital gains tax rules give you a tax-free personal gains allowance of £12,300 per year. Above this allowance, gains from residential property sales are currently charged at 28% (for higher and additional rate taxpayers). The rate differs for gains from other assets, such as equities, which are currently charged at a lower rate of 20% (for higher and additional rate taxpayers).  

These figures are currently under review, so before investing in property, you should also be aware of proposed changes.

Proposed changes to the capital gains tax regime are being considered and may be introduced in 2021 or 2022. If introduced, these could leave you with a much higher bill when you come to sell your buy-to-let property.

One possibility is that capital gains tax rates will be raised to match income tax rates. So, if you’re an additional rate taxpayer, you could potentially pay 50% tax on gains from residential property sales. If we take as an example the sale of a £350,000 property at a £20,000 gain, this sale would currently result in a capital gains tax charge of £5,600 (for an individual who has already used their personal allowance). Proposed changes could increase this tax charge to £9,000.

In many cases investors choose to retain a buy-to-let property rather than sell it.

It is worth mentioning that this change is not yet confirmed and is one of multiple possibilities that a financial planner can advise on fully. At Investec, our private banking team can introduce you to our dedicated team.

You can read our latest property market insights from our team including chief economist Phil Shaw, here.