The Budget 2015

What is the impact of the July Budget 2015 on property crowdfunding vs traditional buy-to-let?

apol News

The Budget 2015

What does it mean for a UK Property Investor?

It’s been 2 weeks since Chancellor George Osbourne delivered his first Conservative budget and we’ve taken a closer look at how the property related changes impact the buy-to-let investor and what it means for property crowdfunding via A Piece of London (APOL).

There are 3 main changes which impact property investing either as a traditional buy-to-let landlord or through property crowdfunding.

Budget Change #1
Tax relief on buy-to-let costs
This relief was beneficial to the higher rate tax payer who ordinarily pays 45% tax. This is now capped at 20%. This change means that for every £100 of allowed cost that is offset against their income (i.e. mortgage interest) a landlord can claim back £45. With the new change a landlord can only claim back £20.
Impact for buy-to-let landlords
Negative – but will not come into force until 2017
Impact to APOL investor
Not applicable as the investments are made through a limited company which pays dividends.
Budget Change #2
Corporation tax to reduce
Corporation tax is applied to any profits a corporate entity such as a limited company makes. From April 2017 this will fall to 19% and then to 18% in April 2020
Impact for buy-to-let landlords
Not applicable unless the buy-to-let structure is via a corporate entity.
Impact to APOL investor
Positive – Each property is the sole asset of a limited company and all profits are subject to corporation tax. With this tax reducing, investors will be in line to receive more of the profit
Budget Change #3
10% Dividend tax credit to be abolished
From April 2016, an annual £5,000 dividend tax allowance will be given to individuals and the 10% dividend tax credit abolished.
The tax currently paid on any dividend payment is determined by your income tax bracket but this change will allow a £5,000 tax free allowance on the sum of the income from all dividends regardless of your income
Impact for buy-to-let landlords
Not applicable unless the buy-to-let structure is via a corporate entity
Impact to APOL investor
Positive – If the sum of all your dividends is less than £5k then you will pay no tax regardless of your income tax bracket. E.g. if you made investments of £125k and achieved returns of 4% then no tax is payable.
Negative – If your total dividend was greater than £5k then tax will be paid based on your income tax bracket which is likely to be more than is currently paid whether you are basic tax payer or higher rate tax payer.
Budget Change Impact for buy-to-let landlords Impact to APOL investor
Tax relief on buy-to-let costs
This relief was beneficial to the higher rate tax payer who ordinarily pays 45% tax. This is now capped at 20%. This change means that for every £100 of allowed cost that is offset against their income (i.e. mortgage interest) a landlord can claim back £45. With the new change a landlord can only claim back £20.
Negative – but will not come into force until 2017 Not applicable as the investments are made through a limited company which pays dividends.
Corporation tax to reduce
Corporation tax is applied to any profits a corporate entity such as a limited company makes. From April 2017 this will fall to 19% and then to 18% in April 2020
Not applicable unless the buy-to-let structure is via a corporate entity. Positive – Each property is the sole asset of a limited company and all profits are subject to corporation tax. With this tax reducing, investors will be in line to receive more of the profit
10% Dividend tax credit to be abolished
From April 2016, an annual £5,000 dividend tax allowance will be given to individuals and the 10% dividend tax credit abolished.
The tax currently paid on any dividend payment is determined by your income tax bracket but this change will allow a £5,000 tax free allowance on the sum of the income from all dividends regardless of your income
Not applicable unless the buy-to-let structure is via a corporate entity Positive – If the sum of all your dividends is less than £5k then you will pay no tax regardless of your income tax bracket. E.g. if you made investments of £125k and achieved returns of 4% then no tax is payable.
Negative – If your total dividend was greater than £5k then tax will be paid based on your income tax bracket which is likely to be more than is currently paid whether you are basic tax payer or higher rate tax payer.

Please note that each individual has a different tax position and the information above should not be treated as tax advice. You should seek independent financial advice to see how these changes affect you.

Final Thoughts

On the surface the changes are more impactful to traditional buy-to-let investors and may give them something else to think about but in reality it won’t have much impact as the majority of buy-to-let investors are not looking for tax relief but are looking for growth on the property which can be far greater than any tax relief.

For an investor making an investment with property crowdfunding, the changes are small but generally positive thus allowing an investor to benefit over the coming years compared to the previous rules.

Share this article

Your capital is at risk. Returns may be variable and the value of your investment may go down as well as up.
There is no public compensation scheme covering poor investment performance.

Click here for Key Risks