More budget bad news for landlords! The ‘sugar-tax budget’ has provided a sweet deal for many, but has left a really bitter taste in the mouths of many landlords.
George Osborne has failed to redeem himself following last year’s autumn statement, with the Budget causing upset amid the Buy to Let community.
Capital Gains Tax
The upcoming cuts to Capital Gains Tax were initially to be a popular move, until Osborne quietly mentioned that the cuts would not apply to chargeable gains on the sale of a residential property.
The Chancellor stated that the government would be 'taxing the things that ‘it wants to reduce, not encourage’. This makes perfect sense for things like the sugar tax, but this further tax on landlords is a very bitter pill to swallow.
Just before he made the changes, Osborne declared that our ‘capital gains tax is now one of the highest in the developed world’. His triumphant announcement that headline rates will be cut on 6th April from 18% to 10% for basic rate taxpayers and from 28% to 20% for higher rate taxpayers was music to the ears of many, however landlords will still be subject to the higher rate of tax if they sell a buy-to -let property.
This seeming lack of support for the private lettings industry seems to many like another kick in the teeth for small landlords and investors, many of whom may start to shy away from the already heavily penalized market. 'The steady upward ratchet of taxation on landlords over the past year shows that George Osborne is determined to bear down on the private rental sector', said Richard Lambert, chief executive of the National Landlords Association.
It is expected that the change will encourage many landlords to operate as companies, as sales of shares in a company which owns residential property would be subject to the lower capital gains tax rate. In addition, the reduction of corporation tax to 17% would further encourage the move to landlords looking to become companies, rather than operating as individuals.
Considering that the majority of amendments have been put in place to discourage corporate investment into property leaving the path clear for first time buyers, it seems that the Chancellor's carefully laid plans may have backfired.
Any landlords who were hoping to see a U-turn of plans for a hike in stamp duty in just a couple of weeks’ time were left disappointed, and Mr Osborne in fact went one step further – bringing his much disliked 3% stamp duty reform to even more people in the private letting market.
'Large scale professional' landlords, who were buying over 15 properties in one deal were previously exempt from the scheme, are now included in the tax hike and will be subject to the same price increase as their smaller fellows.
This was not the only change however, additionally, people who buy a second property (as their home) before they sell their first now have 36 months to sell their 'first' home, previously they only had 18 months. In this 36 months a refund can be claimed for the additional 3% costs.
The final change states that if a husband and wife live apart, and intend to stay living apart, they will no longer be treated as a single unit. Separating couples will not have to pay the additional 3% should one of them buy an additional property.
New Property Stock
Osborne also failed to touch upon the major elephant in the room, the lack of new housing stock to meet the demand. It fell to leader of the opposition Jeremy Corbyn to point out that the proposed thousands of new homes promised last year had failed to materialize, and there didn’t seem to be much happening in the way of planning...
For anyone hoping to start - or add to - a rental portfolio this is not good news. The lack of available stock is leading to the market being squeezed tighter and tighter, with more and more people vying for the same few properties. Buy-to-let investors are going up against first time buyers, and with the odds stacked against landlords, much of the time they are not coming out on top.
For landlords who already have their portfolio in place, no new properties is not a bad thing – a lack of new homes for buyers means that more and more people are having to turn to the private lettings market, pushing the rental rates up higher. However, rents can’t go on increasing, eventually this bubble will burst too, leaving landlords high and dry and many households looking to social housing as their only option.
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