OBG-SpainThe nights are drawing in for UK buy-to-let investors – and George Osborne is turning off the heating. Is it time to look for the blue skies and warm winters of overseas investment, asks OverseasGuidesCompany.com?

 ·         The Chancellor’s tax changes will wreck UK buy-to-let for many investors.

·         The exchange rate favours overseas investment.

·         Overseas markets are recovering while UK property looks shaky.

“’Fly to let’, the overseas version of buy-to-let investment, has been a bit quiet in the past five years”, says Angelos Koutsoudes, Head of OverseasGuidesCompany.com. “But the loss of higher rate tax relief on buy-to-let investments in the UK, as announced in the last Budget, is making many property investors look further afield for profit once again.”

Many investors in UK property are only just waking up to the bombshell contained within George Osborne’s 2015 Budget. The measure to stop higher-rate tax payers claiming higher-rate tax relief against mortgage interest payments will not just dent their profits, for many it will wipe them out entirely. Campaigns against the measure are gathering pace. But if it goes ahead, combined with the likely interest rate rises coming later in the year, the change could kill off UK buy-to-let as an investment for higher income small investors.

What is the big change?

At the moment, if you are a higher (40%) or additional rate (45%) tax payer, you can get a reduction for finance interest at 40-45%. Starting in 2017, however, this will be gradually reduced and by 2021 you will only be able to claim 20%. 

According to calculations by the National Landlords Association, a 45% tax payer with buy-to-let property on which he currently pays £12,000 in interest, will be worse off by £3,646 each year from 2020. This means that if you are higher rate taxpayer and your interest payments are more than 75% of your rental income, then your buy-to-let investment will lose you money.

That’s bad enough, but remember that for the last seven years we have been enjoying historically low interest rates. With those rates expected to rise before Christmas, many more people will be affected. For all of them, UK property will be an increasingly bad investment.

Could overseas be the answer?

“We see three reasons why overseas property could be the answer for UK investors,” continues Koutsoudes:

1.    Better rental returns. Some analysts, including the Global Property Guide, already put the UK near the bottom of the global league table when it comes to rental returns - and that’s before these Budget effects come in.

2.    Better capital gains. The economies of many popular overseas destinations have been slower to recover than the UK, so are behind in both the business cycle and property price rises. In Spain, for example, property prices have only just started rising. In France, they have been falling for years, but may be approaching rock bottom.

3.    A sunnier investment. Overseas holiday lets allow the possibility of using your property investment for your own or your family’s holidays – a considerable annual saving in itself.”

“UK property investors have enjoyed a good few years in the sun. But with the political tide turning against them, the huge emphasis on building property and helping people to buy rather than rent, it feels like we are at the fag-end of UK property’s summer season. Wise investors are shutting up shop and looking for sunnier climes overseas.”