Whether you’re a portfolio property landlord or have a singular, additional property, you’ll have been impacted by the buy to let changes that came in April 2016. Rental property has been one of the best and most consistent investments of the last three decades, but Government changes to means investors are potentially looking elsewhere.
Recent research by the Residential Landlords Association (RLA) shows that 26% of landlords have either sold property because of the 3% surcharge on stamp duty that came in in April 2016, or intend to do so as a result to further tax changes from April 2017.
The story so far (as of 1st April 2016):
• There is a 3% Stamp Duty surcharge on every new property purchased and added to your portfolio
• 10% wear and tear allowance abolished
• Tax relief changes; 2017 – 2021 to be phased out for higher rate tax payers. This tax relief change will curb the amount of mortgage interest landlords can offset against tax on their property investments. The planned tax changes will put to an end mortgage interest payments being a claimable business expense.
• Capital Gains Tax on all properties to be paid within 30 days from 2019. Capital Gains Tax to remain at 28% for Buy to Let although this will be reduced to 20% by 2021.
The Government and the Treasury are tightening the loopholes on landlords adding to their portfolio without financial penalty. The Treasury believes more should be paid by portfolio investors because of the Capital Gains made by property. It’s still arguably the best investment.
However, some industry personnel believe that as a result of the Government and Treasury intervention, rents could rise sizably so landlords can cover to the increases to stamp duty and the capital gains tax they will inevitably have to pay. Worst case scenario is landlords/investors decided to sell thus making tenants homeless so losses can be mitigated.
Are landlords and investors taking it on the chin?
In a word, NO!
In October, Cherie Blair CBE and QC of Omnia Strategy LLP, represented co-claimant landlords Steve Bolton and Chris Cooper against the tax changes. Ms Booth – wife of ex-PM Tony Blair – is also a serial landlord with 10 houses and 27 apartments across the UK and thus has more than a passing interest.
Through Ms Booth QC, the landlords argued that new rules amounted to an unfair tax on tenants because they would drive up costs for buy-to-let investors, and went to the High Court seeking a judicial review. These costs will be passed on, in most cases.
HM Revenue & Customs and the Treasury successfully argued and the High Court took their view.
Speaking outside the court after the verdict, Ms Booth commented: “We will continue to engage with the government to make sure that the message comes over about the inherent unfairness of this tax. It’s not over yet.” However, a further (costly) legal challenge has been ruled out. It remains to be seen how the challenge manifests itself in future.