New UK tax rules mean a £125,000 property will now cost you £3,750 more in Stamp Duty Tax, something which previously would of cost you nothing – isn’t there another way?
As a UK property investor, you not only face paying extra stamp duty, but tougher mortgage rules and less profit because of changes on how mortgage interest can be deducted.
While there are still buy-to-let deals out there, it’s certainly going to be harder for investors to find them with these new challenges in place
In fact, almost one fifth of landlords are now ready to sell up, according to recent surveys completed by the National Landlords Association
If you’ve got a lump sum of cash to invest and you’re thinking twice about buy to let, there are some other options worth considering that can still make your money work very hard for you
In this article I’m going to share 3 alternative ways you can invest in UK property without paying stamp duty tax
1) Hotel Rooms – Earn a monthly income from the booming UK tourism industry
Since the Brexit vote, the UK tourism industry is booming due to the weaker pound making it more attractive to visit the UK.
In locations close to cities or attractions, buying a hotel room can offer steady monthly income, and often comes fully managed making it a hands off investment
Some of the benefits typically include:
- Higher yields than buy-to-let, usually in the region of 8%+ NET per year
- Investors usually buy a room in the hotel and then lease this back to the hotel operator, who cover all the costs and pay a fixed rent per month
- Most operators will offer to buy back the room in the future at a profit – providing an exit route
- Due to hotel rooms falling under commercial transactions, there is no stamp duty tax on purchases below £150,000
2) Purpose Built Student Accommodation – Make regular income from the UK’s top university cities
The purpose built student accommodation sector has seen positive growth year on year for the past decade. It’s no wonder it’s a staple for many hedge and pension funds.
Why? University accommodation simply can’t keep up with new student housing demands, which has led to shortages of rooms in many university cities
Here’s a few of the typical benefits:
- NET yields usually in the region of 8-10% per year
- Rooms often come fully managed making them ideal for income investors looking for minimal hassle
- Most operators offer rental assurances and a guaranteed exit with uplift after a few years
- PBSA is classed as commercial property, so no stamp duty taxes on purchases below £150,000 and no Capital Gains taxes when you sell either
3) Become an ‘armchair’ property developer, lend cash and take a cut of the profits
Although the new buy-to-let changes make it tougher for investors to make profits, there is still a serious shortage of housing in the UK.
The recent 2017 budget announced new government targets to build 300,000 new homes per year through incentives for developers.
How can you profit from this?
It’s still hard for smaller developers to lend from banks, so developers are always seeking assistance in funding new projects.
One way developers are securing funding is through structured vehicles like ‘mini property bonds’ or ‘loan notes’
Some of the typical benefits to these might include:
- Fixed income, usually in the region of 10%+ per annum
- A short term investment, ranging from a few months to a few years
- Full funds returned at end of term, with no long term commitments
- A security charge or debenture against property assets to help minimise any risks to the investor
- No stamp duty taxes to pay, as you are not directly investing in the property
So there you have it, 3 alternative ways you can start earning income from the UK property market, without paying any stamp duty tax
What are the risks with alternative assets?
Although alternative property can provide greater income (and in many cases a more ‘hands off’ investment) than buy-to-let, there are a few things to consider:
- They are only available to cash investors
- They won’t usually have much of a secondary market – so it might take longer to find a buyer if you wanted to sell earlier
- Extra due diligence and care will be required to check out the developer and any guarantees offered
Of course, it’s important that you fully research these options yourself and seek whatever professional advise required, before deciding whether or not they are right for your portfolio.
However, as part of a well-diversified portfolio, many sophisticated investors are using these alternatives to enjoy higher incomes, pay less tax and avoid the hurdles faced in the current buy-to-let climate.
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