As the global financial crisis took hold in 2008, banks attempted to bring the world economy back to life by slashing base interest rates.

The idea behind this is to make saving less attractive, thus prompting people to spend their money instead.

In the UK, the Bank of England reduced interest rates to 2% and then 0.5% in early 2009.  In 2016, they dipped even further to an astonishing 0.25%.

We may be a decade on from the recession but interest rates are yet to recover significantly and currently sit at 0.75%. This is a far cry from 14.88% which it was 30 years ago.

What’s more, if you take inflation into account, (around 2% in the UK), then the value of any savings is actually falling. It will effectively lose value the longer you leave it in the bank.

Similar downward slides can be seen on the interest rate graphs of many developed economies including Japan and the USA. It’s the universal nature of this phenomenon that has had such a stark effect on the value of property worldwide.

For those who do have the money to invest, property feels like one of the few options that can provide a reliable, substantial return over time. Equally, letting any property go while values continue to rise can feel foolhardy. As a result, those who might traditionally have sold a flat to buy a small house and then sold that in turn to pay for a larger home, are nowadays keeping those smaller properties to rent.

If you imagine somebody had a £280,000 lump sum in 2008. Based on Land Registry statistics, a terraced house bought in London for the then-average price of £281,000 could now be worth almost £500,000 – a 78% increase in the value of their investment in 11 years.

If, on the other hand, they’d found a savings account offering the equivalent of 1.5% interest, that original lump sum would be worth a little over £330,000 today – an increase for sure, but significantly outpaced by inflation.

Could the property bubble burst?

As with any investment, there are of course reasons to be cautious when it comes to property. The more property is treated as an investment, the more likely it will attract speculators, especially from overseas.

This is a classic sign of an investment ‘bubble’ when the core value of a given asset – in this case a house or flat – is exceeded by its price.

In other words, the market value of a three-bedroom terraced house in Streatham might be £1 million, but only because demand is outstripping supply – not because of the quality of bricks and mortar.

If interest rates begin to rise, or foreign property investors find themselves subject to new taxes or laws, they might withdraw from the UK market en masse, pricking the bubble. Another potential hurdle could be the government deciding to invest in large scale social housing projects, thus increasing supply.

Bubble or not, the lack of housing has led to a corresponding demand in the rental sector, with an increase of 60% in the number of households renting between 2007 and 2017, according to the Office for National Statistics.

However many rental properties you own, please remember that there are certain financial implications you should be aware of. We go into more detail about this below and you can also contact us about our accountancy services if you would like further information.  

Restricted interest

In 2017, the Government introduced a measure which restricts relief for the costs of finance on residential properties.

It means that by 2020/21, things such as mortgage interest, interest on loans for furniture and fees on mortgages or loans will no longer be deductible from property income for the purposes of calculating property profits.

Instead, landlords will only be able to claim a basic-rate reduction from their income tax liability for those costs.

Tax year

Finance costs permitted









This measure only applies to landlords who let residential property as individuals however. It’s not applicable to those who let furnished holiday homes, or through a limited company.

With that in mind, if you’re managing a number of properties, setting up a limited company for your rental business might make sense. This won’t work for everyone though and you’re likely to incur costs transferring the properties, even if there are certain tax advantages.

Property trading

While most landlords hold onto their properties long periods of time, some turn them over much more frequently. In these cases, HMRC might treat their business as a trade rather than investment. This could apply to you if you: 

  • Manage properties owned by others
  • Buy and sell within short periods
  • Buy and renovate to sell at a profit

If HMRC decides to treat your property business as a trade, any profits you make from selling your properties will be subject to income tax rather than capital gains tax. You may also have to register for VAT if your annual taxable turnover exceeds £85,000 as well as pay national insurance contributions on your business profits.

Cash-basis record-keeping

Individual landlords have to keep records of income and expenses relating to their property business. Those with an annual turnover of up to £150,000 are expected to use the cash basis by default.

Otherwise, they have to follow the same standards and accounting conventions as any other business, known as GAAP – or generally accepted accounting principles. Cash basis means that only transactions completed within the tax year or accounting period are recognised in the accounts.

Debts owed by customers can be ignored until the amount is paid. Similarly, expenses are not taken into account until the bill is paid.

In general, this keeps things simple, but individual landlords can opt out and use GAAP if they wish.

For most landlords, property is just part of a more complex mix of investments and income, which means that strategic tax planning is vital. Ideally, you should talk to your accountant as soon as you acquire your first additional property, so you can lay sound foundations for what might grow to become an empire.

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