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Don’t blame Brexit for the collapse of buy-to-let

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You can blame Brexit for an awful lot of things. The slowing UK economy. The slump in sterling. The relative underperformance of UK stocks and shares. Current political rancour and mistrust. The fact that British politicians are ignoring a host of other pressing problems, from knife crime to the productivity puzzle.

What you cannot honestly blame Brexit for is the collapse of buy-to-let. It will have played a small part in knocking sentiment, but the real damage has come from another quarter. Although, once again, politicians have their fingers all over this one.

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Tax attack

Buy-to-let was doomed from the moment Chancellor George Osborne was persuaded that amateur landlords were squeezing first-time buyers off the property ladder, and something had to be done about it. Personally, I have always had some sympathy with that point of view. While I was tempted by buy-to-let, I could also see it was unfair that young home-buyers were being outbid by older investors who had no intention of living in the property themselves.

Instead, they wanted to rent it back to those same first-time buyers, effectively profiting at their expense. Having said that, I never bought into the idea of “greedy landlords”. As in every sector, there’s good and bad. In a well-balanced housing market, there’s a place for both, it’s just high prices and supply shortages made the competition unfair.

Crackdown

The Treasury then unleashed an astonishingly vicious tax attack on buy-to-let, slapping on a 3% stamp duty surcharge, reducing wear and tear allowances, and gradually phasing out higher rate tax relief. That effectively taxed landlords on turnover rather than profits.

Worse, this punished smaller investors, while those who were large enough to set up limited companies escaped the worst. People looking to buy one or two properties to top up their retirement income found their sums no longer added up. Brexit be blowed, blame the Treasury.

London falling

Yes, Brexit has hit the wider London property market, with prices down 0.7% in the last year. But the Treasury inflicted most of the damage by slapping extra taxes on foreign buyers (although again, I have some sympathy with its motivations). High prices and low yields were also to blame.

I reckon it’s still possible to make money out of buy-to-let, especially if you can take advantage of current uncertainty and pick up a bargain property. However, I think that the effort involved continues to outweigh the potential rewards.

Why bother?

As I’ve written before, buy-to-let investors have the effort of finding and buying a property, doing it up, finding tenants, collecting rent, complying with all sorts of obligations and, well, I won’t go on. Why go to all that bother? If you invest in stocks and shares, you don’t have to.

Better still, if you use your tax-free ISA allowance you can ignore the Treasury because all your income and capital gains are free of tax. You also have a buying opportunity today as volatility returns. Blame the global bear market for that, not Brexit. Blame who you like, but take advantage of it.

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harveyj has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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