Last month George Osborne delivered his eighth Budget as Chancellor. The eyes of the property world were glued to the announcement – waiting to see if the Government had any further plans for the housing market.
In recent Budgets the Private Rented Sector (PRS) has been a particular focus. We've seen Osborne announce that landlords' mortgage interest tax relief will be restricted to the basic rate of income tax and found out that he was scrapping the traditional wear and tear allowance.
There's also been the introduction of a number of initiatives specifically designed to help first-time buyers - part of the Chancellor's very public plans to 'level the playing field' between the buy-to-let and owner-occupier markets.
Now the dust has settled on the latest batch of financial measures, we've taken a closer look and compiled our very own red box round-up.
Stamp duty surcharge
It was announced in last November's Spending Review and confirmed in the Budget on March 16.
From now on, anyone who purchases a buy-to-let property or second home will have to pay an additional 3% stamp duty land tax.
This additional tax has been widely credited for a surge in purchasing activity among investors during the first few months of 2016.
In fact, estate agents Your Move and Reeds Rains recently reported that it was responsible for the strongest March sales figures recorded since 2007.
On top of this, our latest figures show that in March there was a marked increase in the number of enquiries we received from property investors.
Some 37% of our insurance policies were purchased by landlords with new properties compared to just 24% in the same period last year.
A number of conveyancing firms – including My Home Move – also declared that March 31, the day before the surcharge was introduced, was the busiest in their history.
For landlords, the stamp duty surcharge has now become a reality. An extra charge like this means when landlords look to expand their portfolios, doing the requisite research and budgeting is even more important.
Identifying investment properties with attractive yields is key as it'll help to offset some of the extra stamp duty costs in the long-term.
Moreover, as house prices continue to grow at a rapid rate, investors will benefit from solid capital gains over time.
Capital Gains Tax – reduced but not for property investors
The Chancellor also used the Budget to announce that Capital Gains Tax (CGT) rates were being cut – but not for the sale of residential property.
This is now being referred to as a 'CGT surcharge' as it'll cost investors more to sell a property than any other type of investment.
CGT is a tax on the profit when an asset is sold that’s increased in value. UK residents who sell a property that isn't their home are liable to pay CGT.
Capital Gains Tax has been cut:
- From 18% to 10% for basic rate taxpayers (those earning between £11,000 and £43,000)
- From 28% to 20% for higher rate tax payers (those earning £43,001 and over per year)
On the sale of residential properties, though, the rates have remained the same.
It was stated in the Budget literature that this has been done to incentivise investment in 'companies over properties'.
Unsurprisingly, the decision to exclude residential property from the CGT cut was met with angry responses from the various groups that represent landlords.
The National Landlords Association (NLA), for example, had campaigned in the lead-up to the Budget for CGT rates to be eased, in order to give landlords the opportunity to exit the market completely in the wake of the other tax measures being introduced.
“The Chancellor said that this Government would tax the things it wants to reduce, not the things it wants to encourage,” said the NLA's Chief Executive Richard Lambert.
“On that basis, it’s clear he does not regard ordinary people putting their own money into providing homes as worthwhile.”
For landlords looking to reduce their property portfolio, this exemption does come as a bit of a blow – especially to those in the highest tax bracket.
Tax breaks for short lets
Another measure announced in the Budget, which affects the PRS, is a tax boost for people who let properties via short-term lets websites such as Airbnb, OwnersDirect, HomeAway and Flat-Club.
The Chancellor has called it 'a tax break for the digital age' and, from April 2017, UK homeowners who let out their properties via short-term lets sites won't need to declare or pay tax on the first £1,000 they earn on the platform each year.
Those who let rooms in their own homes already benefit from the 'Rent a Room' allowance, which was almost doubled in last year's Summer Budget and now allows homeowners, who let a spare room in their property, to earn up to £7,500 tax-free.
These tax breaks are encouraging for short-term landlords and present the idea of letting via one of these websites as a more appealing way to earn additional income.
With these changes in mind, landlords who let properties via the traditional route will need to remain on the pulse when it comes to pricing and tenant requirements; as competition from short-term operators is likely to increase in the coming years.
A more positive outlook
Now a few weeks have passed and people have had time to think about, and analyse, the latest Budget, it's fair to say that most property professionals would agree that it was a relatively painless statement from the Chancellor – particularly when considering the measures announced in other Budgets recently.
Property investment remains a good option for long-term investment.
As we move forward, with the number of tax changes being introduced over the next couple of years, landlords must dedicate plenty of time and thought to picking out new investments in order to keep their portfolios as profitable as possible.