Mar 16

Budget 2016: Chancellor keeps up pressure on buy to let sector

Landlords have long sat on bumper returns from the buy to let sector with many turning their passion for property into thriving small businesses.

But the 2016 Budget was the latest in a series of clampdowns as the chancellor George Osborne pressed ahead with the introduction of an extra stamp duty charge on additional properties, particularly hitting landlords and property investors.

This means from next month landlords will be preparing to swallow a cocktail of higher purchase costs and the previously announced scaling back of valuable tax reliefs.

Extra stamp duty charges

From 1 April, anyone purchasing an additional property will have to pay an extra 3% stamp duty.

The current stamp duty thresholds for residential property are 2% on amounts between £125,001 and £250,000, 5% on amounts between £250,001 and £925,000 and then rates go from 10% upwards on parts above £925,001.
However, from 1 April, they will pay 3% extra on each tranche.

This means that for a £200,000 buy to let purchase, a landlord’s tax bill will be £7,500, five times the amount before the changes were made.

U-turn on institutional landlords

The Treasury had initially proposed exempting companies and investors purchasing 15 or more properties, but Mr Osborne used his Budget to say everyone would pay the extra charge on additional property.

That’s a bit of a surprise, but the original exemption left smaller landlords wondering why they were being penalised, when the larger institutions were let off the hook.

Scaling back of mortgage interest relief

Stamp duty is not the only change hitting the sector.

Landlords and property investors have already begun preparing for the end of mortgage interest relief, as announced during the 2015 Budget.

This valuable perk used to mean landlords could offset the cost of mortgage interest against their tax bill. But from 2017 the relief will be limited to the basic rate of tax.

Some have incorporated to get round this as companies can still claim for the full relief.

However, there is no way round the stamp duty rules as both companies and individuals pay stamp duty.

Time to sell up?

The extra costs of purchasing and reduced tax reliefs mean some may consider selling up, but this could create a big bill.

Richard Lambert, CEO of the National Landlords association, has been lobbying for flexibility to allow landlords to restructure their portfolios in the face of higher taxation across the board.

“The NLA called for a short term easing of Capital Gains Tax to allow landlords to restructure their portfolios or to exit the market altogether but it appears that however much he [George Osborne] wants us out, he can’t afford to allow us to leave.”

However, whilst the 2016 Budget included a cut to CGT from 28 to 20% on assets, landlords were specifically also excluded from this.

So, for most landlords this budget didn’t make life any more difficult. But it certainly hasn’t offered any signs that the Chancellor’s somewhat aggressive approach to the private residential sector is showing any signs of moderating.


About the author

Chris Conway Photograph  Chris Conway is the Managing Director at Accounts and Legal, who specialise in providing accounting services, taxation and business advice to individuals and small businesses owners. Founded only three years ago, its philosophy has been to deliver an accounting service which offers more than just statutory compliance, by helping interpret technical accounting and taxation topics in a way that is digestible and useful.

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