Property investors: Alternative investment strategies to avoid stamp duty

 
Property investors: Alternative investment strategies to avoid stamp duty

Buy-to-let has been the cornerstone of property investment in the UK for some time. In the last decade, such has been the level of growth in demand for this type of asset that there have been more than three million new rental properties brought to market through this means of investment. And with investors able to achieve between five and six per cent yields, it's easy to see why. 

However, last week, the chancellor George Osborne dealt a disappointing blow to one of the most popular and booming markets for investment nationwide, when he announced that lone investors buying second homes (which buy-to-let falls under) would have to pay an extra three per cent surcharge on stamp duty. 

The market has reacted angrily to this change, which will see the cost of investing in a £250,000 home rise by £7,500, and see the cost of purchasing a property worth £500,000 incur additional fees of £15,000. 

This is likely to dent the appetite for investment when the new law comes into play in April of next year, but it's not the end of the world for buyers. Simply looking around at alternative ways to purchase can bring about a new strategy and some innovative ways to invest in property. 

We take a look at some alternatives.

Property funds

An entirely different way to invest, property funds are different to investing on your own because you own shares in larger investments, rather than purchasing full units. It means less autonomy in what you do, but often there are larger returns to be had. 

Property funds also often offer a good alternative to residential property. They will typically look towards retail and office spaces, where there tend to be higher entry prices that keep lone buyers at bay, but higher yields overall from tenants. 

Even for those funds that do invest in residential property, the surcharge can be avoided, because of the fact they are larger corporate investors. 

Student accommodation

Another alternative is to look below the stamp duty threshold. For any house purchase at less than £125,000, the investor or buyer will not pay any stamp duty tax, and this is something that people can take advantage of at the moment, especially with the red hot student property market.  

The number of students in the UK rises every year, and is likely to do so again for the next few years. This means demand rises year after year, and the property market has reacted accordingly. There's a reason that the last two and a half years has seen £11.7 billion invested after all. 

Student investment can differ from normal buy-to-let. Developers are increasingly building purpose-built student accommodation blocks, and investors are able to get themselves a single unit in these for far less than they might spend elsewhere on a single property. It can mean skipping past stamp duty, while there is the bonus of the incredibly high yields (up to eight or nine per cent) to also consider. 

There's also another factor that gives student property a little edge over buy-to-let. These are more often than not managed by a property management company. So what does this mean? 

Essentially, in these cases, a landlord does not need to do much at all, as the company will deal with things like lettings, maintenance, repairs and rent collection. It makes for a passive investment option that is particularly good for those who are getting involved with property for the first time ever.