For many years investment into buy to let property has generated very good returns as the housing market has risen inexorably and this has clearly attracted many people.

However, are we now beginning to see the end in sight for this type of investment? There is clearly a housing shortage and in order to help tackle this problem, the Government is taxing investment property owners more heavily.

These include increases to Stamp Duty and Capital Gains Tax as well as changes in Mortgage Interest Relief, eating into the income some landlords are able to generate from their buy-to-lets. These changes in taxation for buy-to-let investors are some of the most significant for many years and only time will tell whether they will have the impact the Government desires.

At the same time, the ISA allowance remains generous and the flexibilities on pension savings appear to have made an impact on investment veering away from Buy to Let.  

Pensions, ISAs and Investment Accounts are more attractive from a tax perspective, thanks to lower Capital Gains Tax (CGT) rates on Investment Accounts (with ISAs and Pensions being sheltered from tax). When you consider that this year’s annual ISA limit is still a generous £20,000 per person, enabling investors to build up a significant pool of tax-free assets, you can see why buy-to-let is perhaps not looking as attractive as it once did, especially for new investors.

The tax changes highlighted above mean that many landlords now start at a disadvantage, relative to those putting money into other investments. As an asset class, property has always been considerably more illiquid than, for example, listed equities and bonds. In a market downturn it can take a long time to sell a house. It is also wise for landlords to keep some cash aside to cover unexpected repair bills and rental voids (i.e. periods when you don’t have a tenant). This ties up money that could otherwise be put to work.

Whilst we totally accept that property has been a very successful investment over the years, there are now more obstacles in the path of buy-to-let investors than ever before. By starting on the ‘back foot’, and given the tax implications, property will need to significantly outpace other investments over the longer term to deliver potentially better net returns.