Presented by KIS Finance
The contents of the Budget this month appears to target Buy to Let (BTL) property investors. Due to the shortage of available housing on the market, it is intended that these changes will deter people from buying more than one property and therefore help first time buyers become home owners. However, there is some debate regarding how effective this will be. Firstly, let’s outline the three changes that investors in property will shortly face:
With effect from 1st April 2016, homeowners buying an additional property can expect to pay more stamp duty land tax (SDLT) – 3% extra. This applies not only to Buy To Let investments, but also to anyone purchasing a second home and even to parents buying a house for their children or other relatives. For people who go on to purchase a second property without having already sold their existing home – there is a 36 month period of grace where they can apply for a refund of the higher stamp duty amount paid once they have sold their first property.
Here is a table to show the current rates of stamp duty, alongside how much property investors will shortly have to pay after 1st April:
| Property Price Band | Existing residential SDLT rates | Additional rates for landlords |
| £0 - £125k | 0% | 3% |
| £125,001 - £250k | 2% | 5% |
| £250,001 - £925k | 5% | 8% |
| £925,001 - £1.5m | 10% | 13% |
| £1.5m + | 12% | 15% |
One certainty is that the government will benefit from these new rules, raising an estimated £3bn in revenue over the next 5 years. These additional costs do not address one of the main issues that prospective homeowners face and that is difficulty in obtaining a mortgage in the first instance – with property prices being so high and therefore the amount of deposit required to secure a mortgage being substantial, it is the difficulty saving this amount that stops so many people from buying their own home.
On selling a property which increased in value during the time which it was owned, a proportion of the increase in value is payable in Capital Gains. Currently, 18% is payable for basic rate tax payers and 28% is payable by higher rate tax payers.
Following the Budget this month, the amount of Capital Gains payable on receipt of other types of investment income has been reduced to help savers, however these cuts do not apply to profits on selling BTL properties. The tax cuts mean that for other investments, the amount of Capital Gains payable by basic rate tax payers has decreased to 10% and 20% for higher rate tax payers.
As with any income, rental income earned is taxed in the same way as any other income. When calculating how much tax is payable, interest paid on any mortgage needed to finance the property can be deducted as a cost from the taxable profit. From April 2017, new rules will come into force to remove this right. As a result, more people will fall into the higher income bracket and will be liable for the higher rate levels of tax.
According to the Council of Mortgage Lenders, only around 30% of investment properties have a mortgage, so this change will not affect all landlords.
Most property investors invest in property for long term gain and it is not done as a short term investment. Despite the approaching higher costs associated with buy to lets, in my view it is unlikely to reduce the number of investment properties drastically as the amount to be earned through inflation is likely to beat any alternative method of investment.
To help people get on the property ladder, the cost of properties needs to come down. Rising house prices is driven by the lack of supply - so the only way to combat this would appear to be to increase the supply of housing.
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Last updated: 23 January 2020 | © KIS Bridging Loans 2024 | Terms & Conditions
