Could buy-to-let tax U-turn be on the cards?

This week, the UK government announced a U-turn on a new policy increasing National Insurance. Could the same happen for buy-to-let?

The tax changes for landlords, which come into effect in April 2017, have been the subejct of much heated debate since they were first announced, with a coalition of landlords seeking a judicial review of the relevant clause in the finance bill and other property professionals lobbying the government.

“I would not be surprised if, when the full effects of the buy-to-let tax changes come into effect as of 6th April this year, a U-turn might be on the cards,” says Jean Liggett, Founder and MD of Properties of the World investment agency.

“The buy-to-let tax introduced by George Osborne was not fully thought through for there is a well-accepted chronic housing shortage in the UK and with the government not building nor intending to build any housing (private or social no matter the Housing White Paper blusters of late) it has been the private sector that has stepped in to fill the gap.

“This tax is punishing buy-to-let landlords and dis-incentivising them from buying more residential properties to rent out which goes against the national interest to ‘fix the broken housing market’.”

A growing number of landlords are already preparing for the phasing out of mortgage interest tax relief, which will ultimately force landlords to pay tax on revenue rather than profit, by incorporating so they only have to pay a flat corporate tax of 20 per cent on their profits.

Liggett predicts that landlords will not exit the sector altogether, with many looking to capital growth as well as rental yield to generate returns in the long run.

“Looking at the UK property market as a whole, with interest base rates at a historical low at 0.25 per cent, landlords in most cases will still make more money by investing in bricks and mortar rather than holding their funds in the bank,” she comments. “Even if NET yields drops to 1 per cent or 2 per cent, in most cases when owners sell the property they will benefit from capital growth.”

For more information on how to beat the buy-to-let tax change, click here.


2017 Budget “missed opportunity” for stamp duty and landlords

8th March 2017

The UK’s 2017 Budget has been slammed by the property industry as a “missed opportunity” for both stamp duty and landlord tax changes.

Chancellor Philip Hammond unveiled the last Spring Budget today, reporting on an economy that is now the second fastest growing in the G7, behind only Germany.

Ahead of Brexit, Hammond announced that Corporation Tax will fall to 19 per cent from April 2017, the lowest rate in G20, and then fall to 17 per cent in 2020, “sending the clearest possible signal that Britain is open for business”.

Addressing an urgent issue for the commercial property sector, the Chancellor also announced a cap for any business coming out of Small Business Rate Relief, with their bill increase next year capped at no more than £50 a month, with subsequent increases will be capped at either the transitional relief cap or £50 a month, whichever is higher. A £1,000 discount on business rates bills will also be provided in 2017 for all pubs with a Rateable Value of less than £100,000.

While he also confirmed that the Lifetime ISA will be available from 6th April this year, though, the 2017 Budget was devoid of other property-related issues, with the housing industry criticising the government for not tackling both stamp duty and the punitive measures facing the buy-to-let sector.

“For all the talk of easing the pressure on affordability in last month’s housing white paper, Hammond’s Budget was underwhelming to say the least,” says John Goodall, CEO and co-founder of Landbay. “By not raising the stamp duty threshold, the Chancellor has missed a valuable opportunity to improve access to the housing ladder for millions of aspiring homeowners in the UK, for many of whom the tax is the final straw when facing prices that continue to climb.

“Stamp duty is a significant barrier to liquidity in the market and any increase to the threshold would help to reverse the falling home ownership numbers and transaction volumes,” he adds. “I hope the situation is reviewed in the Autumn Budget”

The National Landlords Association says that Hammond has passed up his “last opportunity to reverse the damaging plans to restrict mortgage interest relief for landlords… or even to act on suggestions as to how he might ease the immediate impact”.

The change, combined with other measures, such as a ban on letting agent fees on tenants, are widely predicted to leave landlords with no other option than to raise rents to compensate for unfairly increased costs.

“He still seems convinced by the Treasury’s analysis of the consequences, and it looks like he will only change his mind when the reality proves different,” says Richard Lambert, Chief Executive Officer of the NLA. “That’s little comfort to the landlords who will be forced up a tax bracket as a result of the changes or potentially forced out of business, nor their tenants who will be faced either with higher rents or the struggle to find another home in an already pressured housing market.”

Steve Bolton, Found of Platinum Property Partners and co-leader of Axe the Tenant Tax – a crowd-funded coalition of individuals and organisations who represent more than 150,000 landlords – adds: “It’s particularly disappointing that the Government failed to comment on or reform the upcoming reduction in mortgage tax relief for landlords that threatens to derail the buy-to-let sector.

“The route to homeownership for first-time buyers must be made easier. Proposed measures to help young people acquire more skills, and therefore potentially achieve a higher income in the long-term, are positive but won’t make a difference in the short-term. Attacking landlords and putting pressure on the private rental sector will only hinder tenants’ aspirations to get onto the property ladder. After the Tenant Tax is implemented next month, many landlords will find their tax bill outweighs their profits, forcing them to either leave the market or put up rents. Both will ultimately result in higher costs for tenants, who will then struggle even more to save for a deposit.”

“The Government has positioned this tax change as levelling the playing field for first-time buyers and investors, but the fact is they generally do not buy the same types of properties,” he continues. “Preventing landlords from buying homes will not result in a wealth of properties becoming available for first-time buyers or mean that tenants suddenly have the required deposit to buy… There is a fundamental misunderstanding of how the BTL sector operates at the heart of this policy and it also completely contradicts the importance placed on the rental sector in the Government’s recent housing white paper. When this tax was introduced in Ireland, rents soared until the Government was forced to repeal its policy. The same will undoubtedly happen in the UK.”

For more on the tax changes facing landlords, click here.

Photo: Chatham House, London