There was little good news for residential landlords in the UK’s Budget announcement with the Chancellor of the Exchequer adding to their woes by excluding them from a tax giveaway.
Just weeks before landlords in the growing buy to let sector face an extra 3% stamp duty charge under a change to tax on additional homes, George Osborne announced they will be excluded from Capital Gains Tax change.
‘Buy to let investors could be forgiven for being completely paranoid. On this evidence, the Chancellor really has got it in for them and has excluded buy to letters from a huge CGT giveaway,’ said Jamie Morrison, private clients partner at the chartered accountants HW Fisher & Company.
‘With more incentives to help savers and first time buyers get on the property ladder, buy to let owners have once again been cast in the role of fall guy,’ he added.
David Cox, managing director of the Association of Residential Letting Agents (ARLA), pointed out that this is now the third Budget which directly attacks landlords. ‘The sector has been punitively taxed, with stamp duty on buy to let properties, mortgage interest relief and now capital gains tax changes. It’s an outright assault on the sector,’ he said.
‘Every other sector has been offered a tax break yet there is nothing here to help the private rented sector, including landlords and most importantly tenants, who will see rent costs rise to subsidise the taxes that landlords pay on property. The government talks about wanting to help the younger generation get onto the property ladder, but with the changes announced today the supply of available property is bound to decrease, and as a result rents will rise,’ he explained.
‘In November, when Osborne announced an increase in stamp duty tax on buy to let properties, we described this as a catastrophic move. The news that larger investors will also have to pay the tax is even worse. Professional landlords, those who typically own more than 15 properties, play a vital role in providing rental stock to the market, and providing the army of renters we have in this country with housing,’ Cox added.
‘Our members forecast that the supply of buy to let properties will dwindle when the new tax comes in to effect, and this news means that supply will fall even faster and harder. We’re already in a position where demand out-strips supply and as supply falls, rent costs rise, meaning the goal of home ownership falls even further out of reach for most of the country’s renters,’ he concluded.
Richard Lambert, chief executive officer of the National landlords Association (NLA), said it is clear that the Chancellor does not regard ordinary people putting their own money into providing homes as worthwhile.
‘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,’ he explained.
‘The NLA called for a short term easing of CGT to allow landlords to restructure their portfolios or to exit the market altogether but it appears that however much he wants us out, he can’t afford to allow us to leave,’ he added.
Doug Crawford, chief executive officer of My Home Move, explained that there is considerable confusion. ‘Some of our clients have faced a huge conundrum on whether to proceed with a purchase because they could not be certain of completing before the change. Being able to reclaim the tax is one thing, but many buyers are not in the position to proceed with a purchase at the higher rate in the first place,’ he said.
‘Across the country, the pressure on any property chain that has a second home purchase within it is going to mean an extremely busy couple of weeks for the conveyancing industry. The critical question will be whether second home buyers who don’t make the 01 April deadline will be prepared to continue with their purchase at the higher stamp duty rate. We anticipate a challenging period for estate agents as they work to renegotiate deals up and down affected chains in early April,’ he pointed out.
‘Some cases are clear cut like landlords adding to their portfolio of existing buy to let properties but others are not. For example, we have seen a lot of couples buying a property when one of them has not necessarily been able to sell an existing property and until now the rules on how that would work have not been clear which is very hard to explain to people going through the stress of buying a home,’ he added.
Julian Goddard, partner and head of residential at Daniel Watney, believes that more landlords will leave the buy to let sector. ‘By continuing to squeeze private landlords with new regulations and taxes at a time of soaring rental demand, the government only risks exacerbating problems within the private rented sector,’ he explained.
‘The growing burden placed on landlords may cause many to exit the market causing a crunch in supply and a spike in rents, the last thing renters need, especially in London,’ he added.