Over the last few years, property investors – especially those who are investing in buying property to let – have been hit with one tax change after another, which means it is now much more costly to buy a property over and above the home you live in.
However, everyone who buys a property is effectively investing, whether you plan to live in it as your home, or intend to make money from it. This is especially true if you have a mortgage as effectively you are ‘gearing’ a property purchase just as an investor would.
The beauty of buying and selling a property you live in is that you can sell the home you own without paying any tax. The only tax you pay is stamp duty land tax when you purchase; for the typical home valued around £230,000, this costs £2,100.
So it is quite possible to have a retirement property plan which just relates to a property you wish to occupy in your later years, without taking on any other property investment as long as you aren’t buying and selling on a regular basis, which HMRC could consider as ‘trading’ and charge you tax.
For example, if you currently own a property worth £250,000 with a £100,000 mortgage and are considering investing £50,000 in another property, it’s worth comparing how this stacks up financially versus:
• Investing the money in your existing home to increase its value;
• Turning your property into two homes and renting out one so you can ‘trade down’ to a smaller version of your own property;
• Paying off the mortgage so you can own your home sooner;
• Purchasing a bigger home locally with the extra cash;
• Moving to a new property in a popular location where house price growth is rapid.
If you have, or can develop, a clear idea of what you would like to achieve in retirement, then the earlier you start, the easier it will be secure your future housing needs.