Changes to the Buy to Let Market

Much has been said about the incoming ‘landlord tax’ announced by the Chancellor George Osbourne in his Autumn Statement, but what does it mean for landlords now and in the future?

Buy-to-let investors will need to pay an additional 3 percent stamp duty surcharge – adding a tax bill of some £3,000 to the purchase of a £100,000 home (which would normally be exempt from stamp duty).

Stamp duty is a progressively-applied rate that depends on the value of property being purchased – up to 12 per cent on anything above £1.5 million.

In addition, landlords are also facing changes to the way they pay tax when they sell buy-to-let properties and from April 2019, all landlords will need to pay capital gains bills within 30 days of selling property, rather than being allowed to wait until the end of the tax year.

The aim is to open up the market to more first-time buyers and curb the growth of private landlord buying.

According to Reuters, private landlord and second home purchases made up a quarter of the market last year – a figure that is a major cause of rising house prices. Following the Chancellor’s announcement, the Royal Institute of Chartered Surveyors (RICS) has revealed that buyer enquiries rose significantly in December as would-be landlords sought to beat the tax before it comes into force in April of this year.

In November, the Council of Mortgage Lenders revealed that the number of buy-to-let mortgages granted had increased by 36 percent in the last 12 months. Lending to first-time buyers, however, was up just 10 percent.

Industry insiders see the Chancellor’s moves as a bid to “choke off future investment in the private properties to rent”, as Richard Lambert, the chief executive of the National Landlords Association (NLA) told the BBC. The NLA has launched a consultation on the proposed stamp duty.

The Association of Residential Letting Agents (ARLA) warned thisismoney that buy-to-let landlords are ‘storming the UK housing market’. In an ARLA survey, 62 percent of agents predict these changes will result in higher rents, while 65 percent say it will push landlords out of the market.

David Cox, ARLA’s managing director, said that after April the number of buy-to-let properties on the market would begin to decrease – and this would almost certainly be detrimental to renters across the country.

Two private landlords, Chris Cooper and Steve Bolton, have applied for a judicial review against some of the changes. They want to challenge the change in the law which means that mortgage interest is not discounted from rental income before the marginal tax rate is calculated, which would increase the number of people paying higher rate taxes.

The Institute of Chartered Accountants in England & Wales (ICAEW) has called the removal of mortgage interest relief unreasonable and pointed out that the worst hit will be small property investors, including middle-class savers who are looking for buy-to-let properties for investment and pension purposes.

Botting and Co Certified Chartered Accountants provides tax advice – for both individuals and businesses. Contact us today on 01903 713508, email or click here for an online quote.

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