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Stamp duty – should landlords be preparing for more changes?

Posted on 2018-10-18

Landlords and investors might feel like they have been unfairly targeted by the Government in recent years, with a number of measures introduced to dampen the buy-to-let market. In April 2016, an additional 3% stamp duty surcharge on second homes and holiday homes was introduced by former Chancellor George Osborne, while a year later the phasing out of mortgage interest tax relief began.

Now speculation is growing that the buy-to-let sector will experience more changes at the next Budget, with the rumour mill suggesting that more stamp duty will be levied on those who purchase homes to let them out.

Where is the speculation coming from?

In a recent guest column for The Sun newspaper, James Forsyth – political editor of The Spectator magazine and a man known to have close connections to the heart of Government – said this autumn’s Budget could witness the implementation of yet more stamp duty on buy-to-let acquisitions.

In the article he argued that the Treasury is looking for ways to raise money ahead of the Budget this November. One option believed to be on the table is to further increase the stamp duty rate for buy-to-let properties.

“This would, so the thinking goes, raise money for the Exchequer and help keep house prices down,” he wrote.

“But if the Government is serious about helping more people on to the property ladder, as opposed to just raising yet more money from Stamp Duty, then what’s needed is changes to the planning laws to get far more homes built where people want to live.”

The Sun’s political editor, Tom Newton Dunn, also chimed in with his thoughts on the Government’s rumoured plans, arguing that the previous surcharge hadn’t actually achieved its desired effect of cooling the market.

With record low interest rates still fuelling buy-to-let activity, the number of buy-to-let landlords in the UK hit an all-time high of around 2.5 million in the last tax year. While it’s true that buy-to-let mortgages now account for less than 13% of all new loans, down from 17% in 2015, there is no sense that people are being put off in the way the Government might have hoped.

Strong opposition to stamp duty rise

The threat of further stamp duty charges for buy-to-let homes has been met with growing opposition. Two former Conservative cabinet ministers have openly condemned the rumoured proposals for an increase in the surcharge, with former trade secretary John Redwood telling the Daily Telegraph that there was no need to increase taxes.

“If you carry on increasing them you'll collect less money from people, which is the opposite of what we want to achieve. The answer for the Treasury is cut stamp duty and you’ll raise more money,” he said.

Meanwhile, Lord Lilley, the former social security secretary, also voiced his opinion in the same newspaper. He said the only two ways to get house prices down were ‘to build more houses or to prevent people buying them, by putting taxes on them’.

“They’ve opted for the second one,” he said. “But we just need to build more houses.”

Others have warned that a further hike in stamp duty could be the last straw for many, leading to a mass exodus of landlords from the market that would prove disastrous for the country and hurt vulnerable tenants the most.

The rapid growth of buy-to-let

Early 1980s – number of private landlords is only in the tens of thousands.

1988 – the Housing Act, which included the introduction of the assured shorthold tenancy, came into being – making renting out a home more appealing than ever.  

1990s - buy-to-let started to boom as the infrastructure of loans, advice and information became more readily available. Mortgages aimed at buy-to-let investors/landlords became more common. Where buying property to rent was once seen as the domain of professional landlords and wealthy people, it was now something ordinary people could aspire to.

2014 – nearly 2 million landlords own approximately 4.9 million properties, a massive rise in just a couple of decades.

2016 – the extra 3% surcharge on buy-to-let homes is introduced to try and slow the sector and improve the chances of first-time buyers purchasing homes.

2017 – despite the changes, the number of buy-to-let landlords in the UK hits an all-time high of 2.5 million in the 2016-17 tax year.

2018 – rumours swirl around that the Government is set to introduce further stamp duty changes for buy-to-let homes at the autumn Budget in November.  

Should landlords be worried?

While it is only speculation, rumours and conjecture at present, there is a chance that Philip Hammond could up taxes on buy-to-let properties in a few months’ time. As a result, it’s probably a wise move for landlords to be prepared in advance for any changes that might come into play.

When it comes to the Private Rented Sector, the next piece of Government legislation is never far away, so you need to ensure you stay up to speed with all the latest industry news to see what is being proposed or introduced. Being prepared, alert and ready to adapt will help you to get the most from your portfolio.

Given the threat of extra charges on the horizon, it might be worth your while carrying out any further purchases now, just in case more stamp duty is levied. Before the surcharge was introduced in April 2016, there was a flurry of landlords buying up properties to beat the deadline and avoid paying tax on their purchase, and it could be a similar case if the Government decides to act again.

On the other hand, nothing may come of the rumours, so it’s best to refrain from making knee-jerk decisions.

What’s more, the sector is one of the most resilient about. There has long been talk of the ‘death’ of buy-to-let – and this was particularly prominent after the 3% levy was implemented – but after a period of adaptation the sector has largely seen off threats to its existence.

Even if the Government does decide to introduce further stamp duty changes, there is a good chance investors and landlords will be able to make the new normal work for them.    

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