The latest raft of tax reforms for landlords will come into effect on April 6 putting yet more pressure on rental incomes. But some property investors have turned to more innovative ways to squeeze out return and yield from their savings.
In April, the Government will introduce a number of changes to capital gains tax (CGT) which could see buy-to-let investors potentially paying thousands of pounds more if they decide to sell up.
The new rule dramatically reduces the window for landlords to declare taxable profits to just 30 days from the sale date, from the 22 months. Experts have said this could lead to a spike in fines for late filings.
The squeeze on landlords – who after April will no longer be able to claim any tax relief on mortgage interest payments – has caused many to leave the sector altogether and invest elsewhere.
The number of buy-to-let investors has fallen to a record seven-year low, according to estate agents Hamptons International, and many more will consider getting out before it becomes more costly in the new tax year.
But where are these former landlords investing now? And what are the alternatives for those yet to make up their minds?
Telegraph Money reader, Sanjay Arora, from Berkshire, was an accountant before becoming a full-time property investor. He has bought and sold as many as 170 homes since 2005 and once had a property portfolio containing 40 properties.
Today he owns 18 properties with a combined value of £3.7m and has sold down more than half of the portfolio following the tax regime changes.
“It’s just not as lucrative as it used to be,” he said. "It’s because of all the tax changes. They are having an impact on income and squeezing profits. These days property prices are not rising as fast as they once were, meaning buying property is not the best bet if you are looking for capital growth. And it’s becoming less and less attractive from an income perspective as well.”
Mr Arora has been funnelling the cash from property sales into the Enterprise Investment Scheme (EIS) – high-risk venture capital funds that channels money into small and emerging businesses in Britain, including start-up firms.
Alex Davies of the Wealth Club, a broker that sells investments in the scheme, explained it was a popular choice for former landlords who are facing large tax bills on their profits.
The Government offers generous tax breaks as an incentive to support smaller, growing business and because of the high-risk nature of investing. These include 30pc income tax relief and the ability to defer CGT.
Mr Davies said: "So let’s suppose you sell a property portfolio for a profit of £100,000 and have a potential CGT bill of £28,000. You can claim back up to £30,000 off your income tax bill and defer the gain – and hence the £28,000 CGT bill – for as long as you remain invested in the EIS. This means that you have the full £100,000 working for you and have potentially saved or deferred £58,000 in tax.”
But such high stakes are unlikely to attract all former property investors, who are used to steady income streams. A more traditional way of investing is buying into funds that own and rent out property across the country or globally.
These can be held within an Isa, protecting you from income duties and taxes on profits when you sell.
Although unlikely to grow your money as fast as the stock market, they can offer decent incomes. The Standard Life Investment Property Income Trust, for example, listed on the Telegraph’s 25 top funds, yields more than 5pc. It has high exposure to the industrial property sector – such as factories and warehouses – which is expected to perform well in future.
Risks remain, however. These investments are also available through “open-ended” property funds which are susceptible to being suspended. This happens when too many investors try to pull their money out of the fund at once, making it hard for managers to sell off their assets, which take longer to sell than more “liquid” assets like shares.