Specialist Lending - February 2017  

What are the biggest tax changes?

This article is part of
The state of the UK's buy-to-let market

What are the biggest tax changes?

Former chancellor George Osborne may be best remembered among the adviser community for the shake-up to pensions he initiated when he announced people would no longer be required to buy an annuity at retirement.

But during his time wielding the big red Budget box, Mr Osborne also introduced a number of tax changes to the buy-to-let sector.

Keith Street, vice chairman, group lending at The Northview Group, says: “Since the former chancellor’s announcement in July 2015 that he was changing the amount of tax relief landlords could claim on their interest payments for buy-to-let mortgages, there have been significant changes to the workings of the buy-to-let market.

“These range from the changes to the rate of stamp duty payable on buy-to-let properties, to the most recent changes by the PRA on underwriting standards.”

Stamp duty

One of the biggest changes affecting the buy-to-let market has been the 3 per cent additional stamp duty for second properties. The higher rates applied to all purchases of over £40,000 from April 1 last year, largely hitting those with buy-to-let properties and second homes.

Paul Shearman, proposition director, mortgages, protection and GI at Openwork, comments: “The rise in stamp duty for second homes has been a big thing to consider. From April 2016, rates were increased by 3 per cent compared to those buying their main residence. Whilst this is far from welcome, it is at least clear and simple.” 

He adds: “Given that most landlords hold on to their properties for a decade plus, the additional cost is limited when viewed over the long-term.”

Jamie Smith-Thompson, managing director of pensions advice specialist Portafina, notes: “There have been obvious changes in stamp duty, although most buy-to-letters just incorporate this into their upfront purchase cost and build that into the rental yield.”

While Mr Shearman and Mr Smith-Thompson are sanguine about the impact of the stamp duty measure, many believe it has been one of the biggest changes to impact the buy-to-let market in recent times.

Perhaps the main concern has been the uncertainty it created, as there were expectations it would affect lenders, landlords and tenants, as well as the health of the buy-to-let market in general.

A lot to take in

As John Heron, managing director at Paragon Mortgages puts it, “there’s certainly been a lot for landlords to take in”.

He notes: “The implementation of additional stamp duty for buy-to-let properties had a big impact last year and this will be compounded by the reduction in income tax relief on mortgage interest payments being implemented incrementally from April 2017.”

Indeed, many in the industry agree that the most significant tax change is still to come for buy-to-let.

This is the change to the amount of tax relief landlords are able to receive on residential property finance costs. From April this year, the tax relief will be restricted to the basic rate of income tax, the government has ruled.