Buy-to-let landlords looking for relief in this year’s Budget were dealt a raw hand by the Chancellor.
Not only were 3% stamp duty hikes on buy-to-let and second homes upheld, investors have also been denied a break on their property profits, as Mr Osborne excluded them from a sizeable capital gains tax cut.
Capital Pains
As part of his address, Mr Osborne said he is to significantly slash the rate of tax paid on capital gains from 28% to 20%. However, this will not apply to investors looking to sell a property. Therefore, landlords will continue to be hit with the old full rate of tax.
Residential property was purposely excluded from the cut that will see investors in other asset classes removed from the larger rate of capital gains tax. It has been speculated that this move by the Chancellor is an attempt to encourage property investors to sell, therefore releasing more homes onto the market.
This comes as a further blow to residential landlords following the previous tax alterations announced by the Chancellor. Landlords are facing the stamp duty rise and a reduction in mortgage interest tax relief, with this now capped at 20%.
Avoidance
Jeremy Leaf, former RICS chairman, said, ‘in denying landlords a reduction in CGT on property sales, the Chancellor is trying to avoid a collapse in property prices. There are probably enough landlords already thinking of selling up because of previous policies and if the CGT reduction had been extended to landlords it would have encouraged even more accidental landlords to sell.’[1]
‘This could have helped first-time buyers as more property comes onto the market but the rush to sell could also have contributed to a collapse in house prices. One can understand the Chancellor’s prudence and it could turn out to be a shrewd move but It will annoy landlords who will feel victimised,’ Leaf continued.[1]
Buy-to-let landlords denied CGT reduction
Pressure
Lucian Cook, head of residential research at Savills estate agents, said, ‘keeping the old rates of capital gains tax on residential property may put further pressure on the supply of private rented homes against the backdrop of rising demand. That may well put upward pressure on rents.’[1]
Richard Lambert of the National Landlords Association observed, ‘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. It appears that however much he wants landlords out, he can’t afford to allow them to leave.’[1]
[1] http://www.dailymail.co.uk/property/article-3495380/Buy-let-landlords-denied-capital-gains-tax-break-Budget-2016.html