Buy to let industry hits out at extra property tax to be introduced next year

There has been a furious reaction to the UK Government’s plans to introduce an increased rate of Stamp Duty for property investors purchasing buy to let properties and those buying a second home from April 2016.

Stamp Duty will be calculated at an extra 3% on top of the basic rate if a property is for buy to let purposes, bringing in some £880 million for the Treasury by 2020. But large corporate investors will be exempt from the charge, the Chancellor of the Exchequer has announced.

But the industry is furious, saying that it will result in house prices being pushed up between now and next April as would be landlords wanting to extend their portfolios do so before the new rate comes in, then it could result in a catastrophic drop in buy to let investment which would in turn force up rents due to a shortage of supply.
 
David Cox, managing director of Association of Residential Letting Agent (ARLA), described the move as a ‘catastrophe’. He pointed out that it is a bitter blow to landlords coming on top of recent changes to mortgage interest tax relief and the annual wear and tear allowance.

‘Increasing tax for landlords will increase rents and reduce property standards for tenants.
To make owning a BTL property financially viable, landlords will need to pass on the increased stamp duty costs to tenants, who will in turn see less spent on maintaining their property and of course see increased rents,’ said Cox.

‘The changes will also deter new landlords from entering the market, pushing the gap between dwindling supply of available property and growing demand even further apart, which will also in turn push up rental costs. In London, where demand is so strong and last year’s stamp duty changes hurt, rather than helped, will see tenants having the greatest burden to bear,’ he added.

Richard Lambert, chief executive director of the National Landlords Association, believes that it will cut off future investment in private properties to rent. ‘The exemption for corporate investment makes this effectively an attack on the small private landlords who responded to the housing crisis by putting their own money into providing homes by the party that they put their faith in at the election,’ he said.

‘If it’s the Chancellor’s intention to completely eradicate buy to let in the UK then it’s a mystery to us why he doesn’t just come out and say so,’ he added.

David Gibbs, partner at Alliotts Accountants, pointed out that not only will buy to let investors be hit with additional stamp duty on purchase but also a requirement to pay capital gains tax within 30 days of a sale.
 
‘Investors will face a hike of 3% on stamp duty for all buy to let purchases from 01 April 2016. That means stamp duty rates will run from 5% for property over £125,000 up to 15% on property over £1.5 million. In addition, when a property is sold from April 2019 the capital gains tax will be due just 30 days after completion,’ he explained.
 
‘Ultimately this set of proposals could drive buy to let investors out of the market leading to a serious shortage of rental property,’ he added.

Jo Bateson, tax partner at KPMG in the UK, explained that more detail is awaited to fully evaluate the tax implications and also how second home owners could be affected. ‘These measures might dampen demand for the kind of properties that are marketed as buy to let investments.  And investors may decide to re-evaluate the attractiveness of the residential market ahead of this announcement,’ she said.

‘There are a number of important issues still to be addressed such as precisely how the stamp duty changes will be applied, what is the definition of a second home, and what is the position of a purchaser who is at first unsure how it might be used,’ she pointed out.
 
‘We are waiting for some important outstanding details such as how reliefs and allowances can be applied to a tax payment which is outside of self-assessment which I am sure will be part of the consultation process,’ she added.

Mike Chapman, senior manager for corporate tax at Knill James Chartered Accountants, described it as a double whammy for buy to let landlords which could have a major impact on the residential property market.

‘The higher rates will be three percentage points above current SDLT rates and the exclusion of companies from the charge indicates that the Government sees the freeing up of residential property currently in private hands as key to its housing policy,’ he said.

‘So, there will be pain on the way into the buy to let market through SDLT and the second announcement on Capital Gains Tax (CGT) on exit. From April 2019, a payment on account of any CGT on the disposal of residential property will be due just 30 days after completion. This compares to the current rules where the settlement of the tax due can be anything up to 21 months after disposal depending when in the fiscal year the sale occurs,’ he explained.

‘Clearly landlords who have maximised their borrowings with a view to enjoying capital growth may now seek to restrict their financial exposure by disposing of parts of their property portfolios. Where such properties are standing at a gain, disposal before the CGT acceleration is due will clearly be advisable,’ he added.

Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA), believes that the Government must be very careful not to go too far and overly constrain the private rental sector, which performs an essential role in the housing market.

‘For all their new initiatives, successive Governments have a poor track record of delivering the required number of new homes, and a healthy private rental sector is vital for those either needing to rent or choosing to do so,’ he said.
 
‘The Stamp Duty changes will impose higher initial costs for investors but most mortgage deals should be able to absorb a slightly higher loan size, if the borrower requires, within lenders’ existing guidelines. Data suggests that landlords invest for the long term, so this change is unlikely to materially reduce activity on its own,’ he explained.