How to be a property investor: our 10-part series
1. Our national love affair with property
Why do we love bricks and mortar so much? Should it be the nation’s first choice asset?
2. History of property prices
Many people have benefitted from soaring prices. We look at the factors that affect the property market and ask where could prices go from here?
3. Property vs pensions
Pension freedoms offer an opportunity for people to use pension fund money to fund a property purchase. Is this a good idea?
4. Buy to let: buying a property
How to deal with the new stamp duty and estate agents’ fees. How to work out if a property is good value.
5. Buy to let: letting it out
Dealing with the new tax on rental income, tips on managing tenants and the lowdown on landlord’s obligations.
6. Buy to let: new taxes for landlords
We explain the heavier tax burden that existing and prospective landlords need to consider.
7. Understanding property tax
A quick guide to how property investments are subject to income, capital gains and inheritance tax.
8. Alternative ways to invest in property
You don’t need to buy a house or flat to cash in on the growth of the property market. There are plenty of other ways to invest in property. We give a quick summary.
9. Commercial property funds
Different types of property funds from ones that invest in bricks and mortar to those that invest in property companies and specialist funds.
10. Property crowdfunding
A new kind of service lets savers club together and pool their funds to invest in property.
A hugely unpopular tax paid on property and share purchases. Stamp duty on property is levied at 1% for purchases over £125,000 (£250,000 for first-time buyers) which then moves up at a tiered rate. For property between £125k and £250k you pay 1%, then 3% from £250k up to £500k and then 4% from £500k to £1m and then 5% for properties over £1m. But unlike income tax, which is “tiered” and different rates kick in at different levels, stamp duty is a “slab” tax where you pay the rate on the whole purchase price of the property. On shares, stamp duty is charged at a flat rate of 0.5% on all share purchases. Figures correct as of May 2011.
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
The catch-all term applied to investors who buy properties with the sole intention of letting them to tenants rather than living in them themselves, with the proceeds from the let usually used for the repayment of the mortgage. Buy-to-let investors have to take out specialised mortgages that carry higher interest rates and require a much bigger deposit than a standard mortgage. Other expenditure can include legal fees, income tax (on the rental profits you make), capital gains tax (if you sell the property) and “void” periods when the property is unlet.