It’s possible to enjoy tax-free income from buy-to-let property without any of the hassle of being a landlord.
There has been a tax and regulatory crackdown on the buy-to-let market in recent years, in a bid to cool the housing market. This has made it more challenging for people to make money from buy-to-let investments, unless they are a ‘portfolio landlord’ with multiple properties.
However, you can invest in buy-to-let loans through a number of peer-to-peer lending platforms, allowing you to access rental yields without buying a property. Many of these platforms offer an Innovative Finance ISA (IFISA), giving you tax-free returns on your investments.
Kuflink, JustUs and Assetz Capital all offer buy-to-let loans, alongside other property investment opportunities, and all have an IFISA wrapper.
Kuflink offers an IFISA with target returns ranging from five per cent to seven per cent, depending on the chosen investment option. You can invest with as little as £100.
JustUs’ tax wrapper has target returns ranging from 1.2 per cent to 9.61 per cent depending on the product and there is a minimum investment of £100.
And Assetz Capital’s IFISA offers target returns of 3.7 per cent to 4.1 per cent, with a minimum investment of just £1.
JustUs chief executive Lee Birkett predicts that more people are going to turn to peer-to-peer lending platforms in the coming years to access buy-to-let investments.
He said that buy-to-let as a property investment is becoming less appealing due to recent tax changes, such as mortgage tax relief being phased out.
Since April 2020, landlords can no longer deduct any of their mortgage expenses from their rental income to reduce their tax bill and instead, now receive a tax credit, based on 20 per cent of their mortgage interest payments.
Birkett said that more people are turning to P2P buy-to-let loans as it is a less volatile option that does not require rental property management and produces attractive returns.
“The good times are over for buy-to-let landlords, it was a good asset class for the last 10 years, but the government started taxing it more, it’s half as attractive as it used to be and past performance is not a guide for the future,” he said.
“It’s better lending on a P2P buy-to-let loan, it’s hassle free, if the property markets doesn’t change or go south in the next 10 years, anything will be better than buy-to-let.
“We’re not comparing apples with apples, you have a capital risk with a buy-to-let property but don’t have a property risk with a buy-to let loan, you’re not involved in the underlying asset growth or appreciation. It’s less volatile and a lot of people invest in buy-to-let loans, you have the ISA to utilise.”