The chancellor’s latest mortgage market meddling is another nail in the coffin for buy-to-let investors, industry experts have said.
In last year’s Autumn Statement, the industry was dealt a blow with a hike in stamp duty of 3 per cent across the board, due at the start of this April.
At first glance yesterday’s Budget saw George Osborne target the sector again, with a welcome reduction in capital gains tax from 18 per cent for basic rate taxpayers and 28 per cent for those on the higher and additional rates, to 10 and 20 per cent respectively.
However, he then announced the reduction would not apply to those selling residential property.
David Smith, director of financial planning at Tilney Bestinvest, said if the reduction had been applied to residential property, it would have inadvertently caused a short-term tug of war between buyer and seller in terms of when the sale should go through.
“However, the omission of buy-to-lets and second homes from this new, extremely beneficial, tax regime underlines the chancellor’s commitment to bringing the industry to heel.
“The future of the residential property market and private rental space is becoming increasingly unclear, as the attractiveness of the buy-to-let market deteriorates at an ever increasing pace,” he said.
Patricia Mock, tax director at Deloitte, pointed out that the CGT change actually affects very few taxpayers and raises only about £5.5bn, while there are about 400,000 individuals and trusts paying it, compared to around 30 million income taxpayers.
“It’s another blow to the buy-to-let market as the reduced rate will not apply to residential property. Much of this is exempt anyway as the main residence, so this will hit buy-to-let investors and second home owners, who of course will already be paying additional stamp duty land tax from 1 April,” she said.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said more buy-to-let purchases will be made via limited companies, even though a policy statement supporting the Budget confirmed that those buying inside a limited company will still be hit by the 3 per cent stamp duty surcharge.
“Arguably the changes in mortgage interest tax relief were always the biggest hardship for landlords, so moving an existing portfolio into a company still makes sense for many investors as corporate entities will remain able to offset mortgage interest against their tax bill as a business expense.”
He noted one piece of good news is that the grace period during which those who have an overlap between two properties can claim a refund on the higher stamp duty rates has been extended from 18 months to 36 months.
As the Budget document stated, there will be no exemption from the higher stamp duty rates for “significant investors” and they will apply equally to purchases by individuals and corporate investors.
Rachael Griffin, financial planning specialist at Old Mutual Wealth, said the chancellor used this Budget to make other forms of investment more attractive.
“Today’s Budget also targets property investors with larger investment portfolios and corporate investors, bringing the rules in line with those that apply to small landlords. While there is little detail on the proposals at this stage, it suggests the government will clamp down on investors hoping to get around the additional stamp duty charges.”
She added those that buy a new house before they can sell their existing home may have to pay additional stamp duty, due to temporarily owning more than one home, but individuals caught in this situation will now have three years to recover overpaid tax.
peter.walker@ft.com
