One in four homes in London are now bought to let.

It's a staggering figure that indicates just how many people will be hit by the proposed second-home tax rules that come into effect in April.

But it's not just the 3% additional stamp duty tax that is threatening the lucrativeness of buy-to-let. Cuts to mortgage tax reliefs come into effect from 2017, sky-high house prices are causing yields to drop significantly, and on top of that, landlords have new obligations in regards to their tenant's right to rent in the UK.

Many landlords will be asking themselves, “Is it really worth it?”

What are the new second-home tax rules?

Anyone purchasing a second home will have to pay a 3% surcharge on top of the normal rates of stamp duty from April 1st this year. The government justifies the tax changes by the fact that they will use the money raised to help build new homes.

The extra 3% may not sound too catastrophic, but it actually will treble the stamp duty bill on a £275,000 buy-to-let from £3,750 to £12,000.

Who will be affected?

The new rules will not just affect landlords, but also those who own holiday homes or pied-à-terres. Those who currently own property abroad will not be exempt either if they then try and purchase property in the UK.

Couples who are married or in civil partnerships are treated as a single unit, so if one partner owns a property and the other doesn't, then they buy a new home together in the UK, they are accountable for the stamp duty surcharge.

Flipping your main residence

Flipping' a main residence was an activity heavily exposed during the MPs' expenses scandal - in which politicians would change their main residence address so that they could avoid capital gains tax sustained on second home sale profits.

Moving out of your primary residence, renting it out and then buying another property will not relieve you from additional stamp duty changes. If your original home is sold within 18 months however, the surcharge will be refunded.

Are there any exemptions?

The only second-home stamp duty exemptions are houseboats, caravans, bulk purchases of over 15 properties and properties under £40,000 - which unfortunately are rather rare in London!

Mixed-use transactions

A mixed-use transaction also avoids the increase stamp duty:

“A mixed-use transaction - the purchase of residential and non-residential properties together in a single transaction - is considered a non-residential transaction for stamp duty purposes.” Mark Harris, chief executive of mortgage broker SPF Private Clients.

Forming a company

Harris continues: “Setting up a limited company can offset the effects of mortgage interest relief at their marginal rate, which may be higher than the basic rate of 20 per cent, but they won't be able to escape the extra stamp duty charges.”

Confidence is plummeting - but landlords shouldn't be scared into leaving the sector

According to research from the NLA, landlords will sell 500,000 properties in the next 12 months, a figure that has almost doubled since July 2015.

It may all sound disheartening, and it's no surprise that landlord confidence is at an all-time low, but panicking and selling is not the answer.

Even if just 10 per cent of landlords leave the sector, the number of properties available for tenants will decrease substantially. Tenant demand is higher than ever before, so a smaller supply will translate into higher rents. The government's plan to get more people in home ownership may be creditable, but in fact the new policies may actually have the complete opposite effect.

In addition, when a landlord feels it is the right time to sell, they can offset buying costs against any capital gains tax - including stamp duty. So though landlords will face a big bill now, they can claim stamp duty back against capital gains tax when they eventually sell at a healthy profit.

Act now and invest before April

Property still offers a fantastic long-term return like no other investment can - especially as future, fast-paced rent rises are extremely likely.

But if you want to invest in property, you must do so now if you want to avoid the stamp duty charge. If you are considering letting out your current property, click here to get a property valuation in 60 seconds.

The next question therefore is where should you invest? Check out Portico's interactive rental yield map, which will show you where to find the best rental yields in London in a few clicks.

If you'd like any more information on how the changes will affect you, give Portico Acton Estate Agents a call today on 020 7099 4000.

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