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Buy-to-let hit again

Last month’s Autumn Statement marked another future tax increase for Buy-to-Let.

“Frankly, people buying a home to let should not be squeezing out families who can’t afford a home to buy.”

Those words from Chancellor George Osborne, heralded the announcement in the Autumn Statement 2015 of an increase in Stamp Duty Land Tax (SDLT) for the purchase of “additional properties like buy-to-lets and second homes”. The rise will take place from 01 April 2016 and, while full details are subject to consultation, looks set to add 3% to the SDLT cost of property purchase. For example, it appears that SDLT on a flat costing £200,000 will cost you £1,500 as a homebuyer but £7,500 as a buy-to-let investor.

That was not the only fresh blow to Buy-to-Let investors. The Chancellor also announced that from April 2019, any Capital Gains Tax (CGT) due on the sale of residential property (typically buy-to-let and second homes) will be payable on account within 30 days of the disposal date. At present, CGT is payable on 31 January in the tax year following sale, which means a deferral of up to nearly 22 months.

These changes come on top of the two measures announced in Budget 2015

  • The phased reduction in tax relief to basic-rate for mortgage interest paid by individual Buy-to-Let investors, starting in 2017/18; and
  • The replacement from April 2016 of the 10% wear and tear allowance with a new expenditure-based allowance.

It is unclear what the long-term effect on the housing market of Mr Osborne’s reforms will be. However, nobody would doubt that the Chancellor is making Buy-to-Let a more heavily taxed investment than in the past. Meanwhile, he has eased tax in other investment areas – such as next year’s personal savings allowance and the new dividend allowance. Perhaps Middle England’s love of Buy-to-Let will start to wane over the next few years. Please note that whilst, in theory, Middle Scotland will be unaffected by the SDLT increase as Scotland levies its own Land & Buildings Transaction Tax; it remains quite possible that the Scottish Finance Secretary will choose to copy his English counterpart’s idea, if only to stop a flood of cross-border purchases.

The value of your investment can do down as well as up and you may not get back the full amount you invested. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice.