The chancellor announced in the latest Autumn budget that he will no longer cut tax credits, but has instead focused his attention on properties and business. What this has meant is that the stamp duty has risen dramatically on second homes and on buy-to-let properties. So has this spelled out the end of buy-to-let in the housing market?
There’s no doubt that this has come as a heavy blow for landlords with such properties, as investors will be forced to pay thousands more in stamp duty on new properties, according to a report by the Guardian this week. Buy-to-let properties had already suffered from the decision to lose tax reliefs, which was announced in July this year. There has been 3% added to the stamp duty rate imposed on properties bought as buy-to-let or on second homes. This means that the tax on a £175,000 property would leap from £1000 to £6,250. In London, prices will sky rocket on properties in the buy-to-let sector.
The stamp duty only applies to properties priced from £40,000. currently, the rate is at 0% on properties up to £125,000, then it increases to 2% on properties from £125,000 to £250,000. Properties sold from £250,000 to £950,000 pay 5%, then 10% above that. These rates will remain the same for residential buyers, but 3% extra will be added if the property is to be used as a buy-to-let or second home. The Guardian also reports on figures prepared by Old Mutual Wealth shows that landlords buying and renting in 2017 will be triple the amount today. If that wasn’t all, the chancellor has introduced a new rule requiring landlords to pay capital gains tax within 30 days of selling a property, although the CGT rates remain the same. A tax specialist from Old Mutual Wealth remarked: ”These changes clearly have a profound impact on the after-tax profits available to buy-to-let investors. Many will feel they can accept a smaller yield in the hope that, in the long run, house prices increases result in a significant capital gain. On the other hand, some will feel that the squeeze makes it significantly less appealing and will look to elsewhere.”
The chancellor could have made this move as a response to there not being much of an effect from the last tax raid made on buy-to-let investors. The Council of Mortgage Lenders released figures this month showed that the number of buy-to-let mortgages granted had jumped by 36% over the previous 12 months, in contrast to a 10% hike for first-time buyers.
The main reason why the chancellor has changed his target from tax credits to buy-to-let properties may have been for politics, but some say it has worked in the favor of first-time buyers. Home-ownership is under threat in the UK, and particularly in London, so this tax on buy-to-let properties will give them a reprieve.
But landlords reckon they will have the last word, with some warning they will increase rent in order to offset taxes. Thus the tug of war with house prices begins.