Chancellor George Osborne proudly declared his budget was going to “put rocket boosters on the backs of enterprise and productive investment” – a statement that, in part, followed moves to cut Capital Gains Tax (CGT) from 28% to 20%.
Yet the rocket boosters won’t be strapped on to one group. The old higher rate of CGT still applies to the sale of second homes, meaning buy-to-let landlords and property investors are to be denied the Chancellor’s tax break.
The exception aims to ensure the benefit is felt by businesses and not the housing market and prevent a possible fall in house prices. Yet the changes are far from the only impact on the buy to let market. Some argue that this latest announcement is just further evidence that the sector is being ‘victimised’.
Stamp duty changes for buy to let
The Chancellor’s most wide-ranging change for buy to let landlords came at the end of last year, when George Osborne delivered his Autumn Statement.
In that, he announced an increase in the amount of Stamp Duty to be paid by those buying second homes. The new rates were set at three per cent above the rate paid by those purchasing their main home.
In practice that means second homes worth up to £125,000 carry a 3% Stamp Duty charge, rising to 5% for properties costing £125,000 – £250,000, 8% for £250,000 – £925,000, 13% for £925,000 – £1.5m and 15% for those above £1.5m.
Mini housing boom in the build-up to changes
The impending arrival of this hike in the upfront cost for buyers of second homes is thought to have caused a surge of activity in the months since November’s announcement.
Anyone looking to sell a house fast at the start of 2016 is likely to have found a willing buyer, as investors raced to beat the charge.
A big majority of members of the Royal Institution of Chartered Surveyors do not expect to see an increase in sales or prices in the next three months, with Stamp Duty changes predicted to cool the market down.
More changes to come for buy to let?
Stamp Duty hikes and missing out on a budget tax break might not be the end of the gloom for the buy to let sector though.
By the end of the decade rules that allow landlords to offset their mortgage interest against their tax bill will end, with changes beginning from next year. On top of that the Bank of England has proposed new stricter lending rules that would make it tougher for landlords to get a mortgage, preventing about one in five loans being issued.
Speaking of the raft of measures that will impact on the sector, the Telegraph’s Matthew Lynn wrote: “Short of attacking them with flame-throwers, or impaling them on stakes, it is hard to know what else the Bank and the government can throw at landlords.”
He goes on, however, to say that interference won’t work and that only a big increase in housing stock and a rise in interest rates – to encourage other forms of investments – will bring about the change Osborne wants.
The budget was symbolic of a wider mood
The budget, therefore, is merely one chapter in the recent story of buy to let. Osborne’s most recent announcement denied landlords the chance of a tax break – but other changes are adding to the cost and difficulty for new people looking to invest in property – and there’s a sense that these changes are not yet finished.