If you're considering taking your first steps into property investment then you'll certainly need some advice. The Money Advice Service has written a guide on tax and property investment that you might want to have a look at as a starting point.
There are two main options when it comes to property investment. Direct property investment is where you buy the property yourself and take on all of the responsibility, or you can take on an Indirect property investment which means you won’t actually own the property but you will get a share of the profits. Think of it a bit like investing into a fund or shares.
Property investment is best done as soon as you can,as house prices are continuing to rise. According to The Guardian, asking prices for houses at the end of 2016 were already 3.4% higher than December 2015 despite the impact of Brexit.
Along with shares, bonds, ISAs and pension funds, you could look at Property Investment as just another common form of investment. Your aim is to essentially make a profit whether that’s by adding value through renovation or refurbishment and selling to make a profit or letting the property out commercially and making money through tenants.
Either way, you want your property to be in a sought after location where people are actively looking to buy or rent houses. If you are renting your property out, then you will have to pay tax on the profits that you make through rental income – these profits are just like a normal income so the tax will be at your normal rate.
The advantages of property investment are that it’s relatively low risk – a house fit to live in will cover its costs in rent alone. That is, unlike shares and bonds that can be susceptible to rapid changes to the global economy. House prices have been through a recession and remained strong so it’s a good place for your hard earned money.
However, like all things money there’s a catch. If you are buying or selling property for a profit then you need to pay Capital Gains Tax (CGT) on it. You can actually get round this if you live in the property for a short time prior to selling it, this is called claiming Private Residence Relief on any profit that you have made. It’s worth meeting a professional financial advisor to talk through your situation before you decide which area to invest your money into.