Budget 2016 impact on buy-to-let
03-26-2016
Buy-to-let investors did not get the reprieve they had hoped for in the Budget.
In a Budget that promised much for young first-time buyers, chancellor George Osborne threw a few more bricks at buy-to-let.
If landlords with more than 15 properties thought their size would protect them from the 3 per cent stamp duty land tax (SDLT) increase announced in his 2015 Autumn Statement, this Budget set them straight.
Mr Osborne said: “There will be no exemption from the higher rates for significant investors, and the higher rates will apply equally to purchases by individuals and corporate investors.”
The chancellor made it clear these higher stamp duty rates would go to raising money for affordable homes to buy for first-timers, especially in areas where many Britons have bought second or holiday homes, such as on the south coast.
He said the higher rates will help give £60m towards the government’s investment in community-led housing developments (for first-time buyers) - especially in areas “where the impact of second homes is particularly acute”.
The changes are unlikely to dissuade the majority of those in the market
Charles Haresnape
According to Richard Sexton, business development director for eSurv, this extension of the stamp duty net would make it all the less attractive for the smallest landlords to consider expanding their portfolios.
He says: “These smaller-scale landlords make up 62 per cent of the rental market, according to data from the Department for Communities and Local Government, with only 5 per cent of landlords owning five or more properties.
“Many of these landlords may choose to take a step back, choosing not to increase the supply of homes to rent, at a time when there is surging demand in the number of potential renters.”
However Charles Haresnape, group managing director of mortgages at Aldermore, says he suspects while there is likely to be an initial reduction in activity, partly due to the increased activity we have seen ahead of the changes to stamp duty, the changes are unlikely to dissuade the majority of those in the market.
Commercial rates
Previously SDLT for commercial property transactions was charged on the old-fashioned “slab” basis rather than the marginal basis brought in for residential property in December 2014.
However, the chancellor announced from 17 April 2016 commercial property would be brought into line with the SDLT and thresholds for non-residential rates, with various bands (see table).
The full figures were set out on page 114 of the 2013 Budget report.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “The tweaks made to stamp duty on commercial property make it a fairer system and even the higher top rate is unlikely to deter investors. It is more likely to be absorbed into the cost of the asset.”
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Residential SDLT set out in Autumn Statement 2015 |
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3% stamp duty increase across the board. Rates of 0% on the first £125,000 of purchase price, 2% on the next £125,000, 5% on the next £675,000 and so forth, would increase to 3%, 5% and 8% (and so on) for all buy-to-let and second homes purchased from 1st April 2016. This represented an increase of £7,500 on the stamp duty payable on a £250,000 purchase, or a huge £15,000 extra for a £500,000 purchase. |
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Commercial SDLT set out in Budget 2016 |
| Commercial property has now been brought into line with the rates and thresholds for non-residential rates. The portion of the transaction value up to £150,000 is charged at a rate of 0%; between £150,001 and £250,000 will be 2%; the portion over £250,000 will be charged at a rate of 5%. Stamp Duty Land Tax on non-residential leasehold rent transactions, where the rates already apply to the portion of the purchase price within each band, will be reformed to include a new 2% rate for leasehold transactions with a net present value over £5m. |
Smaller transactions are likely to benefit from this, which may in particular provide a fillip for individuals who wish to purchase a modest commercial property within their self-invested personal pension (Sipp).
Unintended benefit?
The 2015 stamp duty hike was aimed at higher-earning landlords, so those who pay 40 per cent or 45 per cent income tax were set to be greatly affected, and market commentators last year warned that a hike on SDLT could push more people into the higher-rate bracket.
As the Council of Mortgage Lenders pointed out last year, imposing an extra 3 per cent tax on purchases could make some properties at £125,000, which are currently exempt, subject to this tax for the first time.
However, in the Budget, the chancellor raised the personal allowance, below which no income is payable.
Basic tax payers on a standard tax code will see their personal allowance rise from £10,600 to £11,000 on 6 April 2016 and again to £11,500 on 6 April 2017.
The threshold at which higher rate tax becomes payable by individuals with standard tax codes will also rise, from its current level of £42,386 to £43,000 this April and £45,000 in April 2017.
This might go some way to mitigating the numbers of landlords who risk being pushed into the higher-rate bracket.
Capital gains tax
In the 2015 Autumn Statement, Mr Osborne laid out changes to the manner and timing of capital gains tax (CGT) payments.
This meant any CGT payments must be made within 30 days of a sale of a buy-to-let property from 2019 onwards, whereas previously the payment could be deferred by up to 21 months.
Last November, Mr Osborne said the increased stamp duty rate will apply where, at the end of the day on which a property is acquired, the individual concerned owns two or more residential properties and is not replacing his or her main residence, which has been sold within the last 18 months.
However, after much discussion with the industry since the Autumn Statement, Mr Osborne made a slight concession so the 18-month period in which to replace the main residence has also been increased to 36 months.
Also in the Budget, the chancellor announced that CGT would fall from 28 per cent to 20 per cent for higher rate tax payers and then from 18 per cent to 10 per cent for basic rate tax payers.
Sue Moore, technical manager for private client in the tax faculty for the Institute of Chartered Accountants in England and Wales, calls this move “the headline-grabber in the Budget speech”.
While this was good news for savers, these new, lower rates will not be applied to gains on residential property or carried interest, for UK residents or non-residents.
Ms Moore points out: “This will ensure the new CGT charge on non residents on the disposal of residential property will still be charged at 28 per cent”.