The property market battle lines are drawn: Buy-to-let landlords denied tax break by the Chancellor as homebuyers get a savings boost
03-16-2016
- Landlords excluded from Chancellor's tax break on capital gains
- They will continue to pay a rate of 28% on the sale of investment properties
- Landlords being hit on mortgage tax relief and higher stamp duty rates
- New Lifetime Isa gives boost to under-40s looking to buy their own home
- 'It will annoy landlords who will feel victimised,' says property expert
By Myra Butterworth For MailOnline and This Is Money
Buy-to-let landlords have been denied a tax break on their property profits as the Chancellor excluded them from a big capital gains tax cut.
Drawing the battle lines in the property market, George Osborne announced in the Budget that he is significantly cutting the rate of tax paid on capital gains - but not for investors who are selling property - at the same time as he confirmed a stamp duty hike for second homes but gifted homebuyers extra help.
Landlords will continue to be stung with a hefty 28 per cent capital gains tax bill when they sell up.In the Chancellor's own words, the rate is one of the 'highest in the developed world'.
George Osborne announced he would not extend the cut in capital gains tax to the sale of buy-to-let properties.
Residential property was deliberately excluded from the tax cut that will see investors in other types of asset benefit from the higher rate of capital gains tax being reduced from 28 per cent to 20 per cent, while the basic rate will be reduced from 18 per cent to 10 per cent.
It had been rumoured before the Budget that part of the Chancellor's motivation for cutting CGT could be to encourage property investors to sell up, thus releasing more homes onto the market and helping homebuyers struggling with high prices.
Such a move would have chimed with his stamp duty hike on buy-to-let and second homes that will see an extra 3 per cent surcharge added - confirmed in today's Budget.
But industry experts said the decision could be 'prudent' as extending the tax break that will arrive on April 6 to property investors could have sent house prices tumbling as it would have made it cheaper for landlords to sell up and flood the market with properties for sale.
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Experts said the Chancellor's decision is aimed at trying to avoid a collapse in property prices.
Many landlords are keen to sell up following previous tax changes announced by the Chancellor that mean their investments are no longer financially viable.
Landlords are being hit by a reduction in the amount of mortgage interest tax relief they can claim - which will move down from being able to offset interest against tax and their own tax rate to being capped at 20 per cent.
Jeremy Leaf, a former RICS chairman and north London estate agent, said: 'In denying landlords a reduction in CGT on property sales, the Chancellor is trying to avoid a collapse in property prices.
'There are probably enough landlords already thinking of selling up because of previous policies, and if the CGT reduction had been extended to landlords it would have encouraged even more accidental landlords to sell."
“It will annoy landlords who will feel victimised ”
He continued: 'This could have helped first-time buyers as more property comes onto the market but the rush to sell could also have contributed to a collapse in house prices.
'One can understand the Chancellor's prudence and it could turn out to be a shrewd move but it will annoy landlords who will feel victimised.'
Brokers and estate agents went on to suggest that the move will ultimately hurt first-time buyers through higher house prices, in addition to tenants as landlords try to recoup their losses.
Stuart Gregory, of mortgage brokers Lentune Mortgage Consultancy, agreed that extending the tax cut to buy-to-let properties would have been an incentive for more investors to sell.
'And it would have increased the supply of properties on the market,' he said.
Lucian Cook, head of residential research at estate agents Savills, said: 'Keeping the old rates of capital gains tax on residential property may put further pressure on the supply of private rented homes against the backdrop of rising demand. That may well put upward pressure on rents.'
Richard Lambert, of the National landlords Association, said: 'The steady upward ratchet of taxation on landlords over the past year shows that George Osborne is determined to bear down on the private rented sector, but he still depends on the tax revenues he expects to pull in from them.
'It appears that however much he wants landlords out, he can't afford to allow them to leave.'