Are Two Properties Better Than One?

Are Two Properties Better Than One?

The old saying is pretty adamant about two heads being better than one, but does that idea extend to all aspects of life? Does it, for example, work when we think of properties?

Many people believe that property is an excellent investment and, for the most part, it is. Barring any unforeseen crashes such as we had in 2008, property usually (although not always) grows in value, and if you can afford to purchase a second property and rent it out for a few years before selling it on at a healthy profit, then you could see some very find returns on your initial investment.

Bear in mind, however, that Class 2 National Insurance will be payable on any profit made from renting out your property.

What also needs to be considered is the new stamp duty land tax (SDLT) rule that comes in as of 1st April 2016. SDLT is a lump sum payment that everyone who buys a property over a certain amount must pay as part of the purchase. For someone buying a residential property and selling another – and therefore only owning one property – the tax ranges from between two percent and 13 percent (properties costing less than £125,000 have no stamp duty payable, properties costing between £125,001 and £250,000 have a two percent stamp duty, properties costing between £250,001 and £925,000 have a five percent stamp duty, properties costing between £925,001 and £1.5 million have a 10 percent stamp duty, and any property costing more than £1.5 million has a 13 percent stamp duty payable).

The new April 2016 rule means that anyone who buys a second property (ie without selling their current home) must not only pay the stamp duty land tax, but must pay an additional 3% on top of that.

This extra charge is potentially a large sum of money (it would mean a stamp duty total of £12,500 on a £250,000 house), and could seriously impact the ability of those looking to make money as a landlord from being able to see a quick return – or any return – on their investment.

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