Crowdfunding route for landlords could sidestep regulation and taxes
Landlords should consider investing via crowdfunding platforms to avoid greater regulation and higher taxes such as the 3 per cent stamp duty surcharge and the phasing out of mortgage interest relief, a property firm claims.
Shojin Property Partners recently launched a new crowdfunding product which enables investors to buy into a small portfolio of residential property for rental purposes, sharing the income and capital growth.
Chief executive Jatin Ondhia said: “The rental market in the UK is growing and still presents a fantastic investment, if done correctly. The Brits have always loved buy-to-let investing.
“Our crowdfunding model is unique, as it enables landlords and investors the opportunity to invest in accordance with their own preferences, requirements and tax position.
“Rather than the traditional structure with a bank and an equity investor, we have placed a mezzanine tranche in the middle.
"However, if landlords and investors prefer to take a traditional buy-to-let position, they can buy an equal amount of both mezzanine and equity.”
He believes that the attraction of this type of investment is that it is familiar to investors, but at the same time completely hands free.
But the tax position of landlords and investors often has a big part to play in whether buy-to-let is a sensible investment.
He continued: “A higher rate taxpayer, for example, may not care for the income due to the higher taxation, hoping instead to make a decent capital gain.
"While a lower rate taxpayer may prefer the income, being able to fully utilise the interest deduction and also live off the income.
"Why not, therefore, break this investment up into two pieces – one for those that want regular income and another for those that prefer capital gains.
“Most people in the UK do not utilise their capital gains tax allowance, so our structure enables higher rate tax payers to take a leveraged position in equity, while giving up the income.
"The mezzanine investor meanwhile benefits from a fixed return, regular income and higher security.
“The cherry on the cake is that, because building this type of portfolio involves purchasing several units at a time, there will be an upfront discount, which the equity investor instantly benefits from.
"This discount is usually 5 per cent to 10 per cent off the market value of the properties, based on a third party valuation.”
Richard Truman, Head of Operations at Simple Landlords Insurance, added: "As the property market changes and lending rules get tougher, landlords and would-be landlords are looking for different ways to invest. Technology is disrupting how many traditional process work - and while that's an exciting thing it's always worth remembering that any investment inherently holds an element of risk. Researching your opportunity thoroughly remains as important as ever."