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The impact of the 3% Stamp Duty buy-to-let premium – Marketwatch

by: Mortgage Solutions
  • 03/12/2015
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The impact of the 3% Stamp Duty buy-to-let premium – Marketwatch
George Osborne’s announcement that purchases of second homes and buy-to-let properties will be hit with a 3% Stamp Duty Land Tax premium has sent shock waves through the sector.

The Chancellor’s buy-to-let taxation policy began in his Summer Budget when he announced that tax relief on mortgage interest payments for landlords would be reduced in a phased programme to begin in 2017.

A consultation over exemptions to the premium is underway but it is expected that buy-to-let investors with 15 or more properties in a limited company structure will not be subject to the hike.

This week our panel of buy-to-let experts consider the impact of Osborne’s measures on the market in the short and long-term.

Ying Tan, managing director of The Buy to Let Business, says Osborne’s message is clear that buy to let should be viewed as a serious investment and not a part-time hobby horse.

David Whittaker, managing director of Mortgages for Business, questions the effectiveness of Osborne’s plan to tax the amateur landlord in order to help first-time buyers get their hands on housing stock.

Jane Simpson, managing director at TBMC, predicts the impending tax will cause a surge in buy-to-let purchases and discusses the implications.

David Lawrenson, private rented sector expert at LettingFocus.com, thinks Osborne’s move displays confused politics.

 

Ying Tan is the managing director of The Buy to Let Business

It seems the government has a clear idea of where it wants the buy-to-let market to be.

When Chancellor George Osborne announced in his Summer Budget that income tax relief on buy-to-let properties would be cut it wasn’t long before the suggestion of owning properties via a limited company began to be touted about. Doing so would allow the landlord to avoid income tax altogether and instead pay corporation tax (which will be set at 18% by 2020), via the limited company the full amount of mortgage interest would be tax deductible.

The latest announcement, in last week’s Autumn Statement, only confirms the direction the market is heading in.

One can’t help but assume that the government wants to see the back of amateur landlords with one or two properties and instead turn buy to let into a business opportunity for serious investors only. In order to maintain the profitability of their portfolio, landlords will have to create limited companies and only those willing to seriously invest in the sector will prosper.

Of course, in the short term this could be a costly business for landlords as if they want to transfer their portfolio to a newly created limited company that company would have to effectively ‘purchase’ the properties and, as such, would need to pay Stamp Duty on them. At the new inflated level this could be an obscene amount of money.

I hope lenders in the sector react to this and start looking at ways a landlord can structure the deal to make moving from a personal name to a limited company, which he is now a director of, straightforward and hassle free. I imagine we will see a large number of special purpose vehicle (SPV) companies created in the market going forward and amateur and small-scale landlords leaving the sector as owning a buy-to-let property as an individual becomes unsustainable.

 

David Whittaker is managing director of Mortgages for Business

George Osborne is under pressure to ‘do something’ for the aspiring millions of Britons chasing their own home. Yet in the absence of abundant cash to splash on deserving first-timers, Mr Osborne has become an unlikely taxation enthusiast. By attacking landlords the Chancellor is hoping to pose as an even stronger ally of first-time buyers while actually improving the books at the Treasury.

A dastardly cunning plan. But there are some serious questions away from the wacky world of Westminster. First – will this help first-time buyers?

Well it won’t be a revolution. Particularly in the short term, first-time buyers could see some marginal advantage over those who were unsure about buying to let or entering this industry as a form of pension investment. But this change itself won’t build more homes to share out. Also we should remember that by definition most aspiring homeowners are tenants, and therefore a reliable supply of homes to let remains rather handy for anyone plotting a first step on the ladder.

But will this foil the fundamental buy-to-let business model? Again no – or at least not in the dramatic way some headlines might suggest. This is not actually a tax on landlords. It is a tax on the purchase of additional residential properties by a minority expanding their portfolios, so existing landlords won’t be affected if they don’t make further purchases.

In the short term, we expect a blizzard of buy-to-let applications over the winter, as anyone planning purchases races to get over the line before April.

Further ahead, the plot will take a different turn. This 3% Stamp Duty penalty will gradually combine forces with the Summer Budget’s separate changes to landlords’ tax allowance – and the increasingly open threats from the Bank of England to regulate buy-to-let lending.

Will there be permanent damage? We predicted earlier in 2015 that buy to let needed a shift to a more sustainable path – it’s certainly had a bump in that direction. But these adjustments should be judged over the course of years, and the longer-term horizons of most landlords. Only time will tell if Osborne deserves a medal, or if this is a step too far.

Jane Simpson is managing director at TBMC

The recent news about the additional 3% Stamp Duty on buy-to-let properties comes as another blow to landlords following the announced reduction in tax relief being phased in over the next couple of years. These changes are likely to have some impact on the buy-to-let market in the short and medium term.

The new buy-to-let surcharge will certainly make prospective landlords think seriously about whether rental property is a viable investment. It is likely to deter amateur landlords in particular – those with just one or two properties, who see their buy-to-let investments as a supplement to other pensions plans – for whom the returns may not be attractive enough anymore.

In the short term, however, we may see a surge in activity as landlords seek to secure property purchases before the additional levy comes into effect.

As for professional landlords – those with a considerable property portfolio – there could be a less noticeable impact, if any at all. The Chancellor included in his statement that buy-to-let investors with more than 15 properties will be exempt from the new charges. Also, professional landlords are more likely to hold their properties in a limited company which are not affected by the previously announced changes to buy-to-let tax relief.

These increased costs to be incurred by buy-to-let investors could ultimately be most detrimental to tenants, as landlords may feel compelled to increase rents in order to make their business profitable. It is also unclear how these levies will actually benefit the housing market in the UK. The intention of assisting first-time buyers to purchase a home to live in is certainly credible, but imposing increased taxes on landlords may not be the solution.

David Lawrenson is a private rented sector expert at LettingFocus.com

Osborne’s policy looks confused. First he allows people to take cash from their pensions and naturally many folks said they might put it directly into residential property investments. Then he attacks buy-to-let landlords.

Nationwide Building Society’s ‘foundation’ funded Generation Rent have been increasingly supported by Conservative voting Mums and Dads, moaning that their offspring cannot buy a pad in Islington and were going to have to slum it by buying in Isleworth instead. And it was all the fault of the pesky landlords.

Also, the institutional investors such as Aviva, Legal & General plus overseas banks and corporates have long eyed a piece of the private rented sector action.

Unable to compete with the far more efficient ‘buy-to-let mom and pop landlords’ they have urged for a playing field where they get a friendly ref and get to kick downhill for the whole game. Special exemptions mean they won’t be affected by the Stamp Duty Land Tax change.

Is this the politics of envy? After all, it is hard to be envious with as distant a landlord as Legal & General or Aviva or some foreign concern, (probably registered in the Bahamas for tax reasons, George), than your neighbour, who had the foresight to invest in property lets.

There will be fewer new entrant small landlords. However, the institutional investors will really ramp up their game. Whichever way you look at it, this seems like an unfair attack on small scale landlords.

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