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Buy-to-let landlords suffer stamp duty hike

26th Nov 2015
istock_andresr

Buy-to-let landlords have been dented by the government’s 3% stamp duty increase. Property investors were named the ‘biggest losers’ as the government makes the property market more attractive. 

Higher rates of stamp duty will see a 3% hike on additional residential properties, such as buy-to-let properties and second homes, from next April. The government will use this additional tax to invest in supporting their housing agenda and doubling the housing budget.

George Osborne made the announcement during his spending review speech. “This extra stamp duty raises almost a billion pounds by 2021 – and we’ll reinvest some of that money in local communities in London and places like Cornwall which are being priced out of home ownership.”

However, the government will consult whether the exemption for corporates and funds owning more than 15 residential properties is appropriate. AccountingWEB member WhichTyler smirked at the exemptions: “15 residential properties is probably within some BTL portfolios, so expect the BTL lobby to campaign for the threshold to be lowered so they are not too hard hit.”  

Buy-to-let landlords are likely to feel the squeeze of this new measure as the government attempts to make stepping onto the housing ladder more attractive.

Tina Riches, national tax partner at Smith & Williamson, said: “This will be a further nail in the coffin of the buy-to-let market. The government is rightly keen to ensure that as many individuals as possible can buy their own homes, however, it is going to be difficult for those who have given up other jobs and invested in this market. Besides, in the short term, rents are likely to go up making it very hard for first time buyers to save.”

Landlords who are not already in the process of reviewing their portfolios will need to do so before long. Jo Bateson, KPMG tax partner, warned investors may wish to “re-evaluate the attractiveness of the residential market” ahead of this announcement coming into effect from next April. There are a number of important issues still to be addressed such as precisely how the stamp duty changes will be applied: What is the definition of a second home, and what is the position of a purchaser who is at first unsure how it might be used?”

Replies (42)

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By ireallyshouldknowthisbut
26th Nov 2015 11:59

.

There are loads of questions here:

1. What about husband and wife, one owning family home and one the BTL?

2. Does this hit your PPR (it seemed to be ANY home more the number one)

3. If you hold one property in a limited company and one in your name is this caught?

4. How about if you have 10 limited companies one for each of 10 properties?

That is to say, what - if any - related party rules will there be?

It is quite frankly really unfair to release new policies like this without legislation. 

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By Satwaki Chanda
26th Nov 2015 12:08

Institutional corporates/funds unlikely to be affected

The consultation is aimed at small/private fund type vehicles. If you look at the words immediately before the mention of the consultation process:

"The higher rates will not apply to purchases of caravans, mobile homes or houseboats, or to corporates or funds making significant investments in residential property given the role of this investment in supporting the government’s housing agenda."

There were a lot of reforms to the REIT rules in 2012, specifically to encourage more REITs to invest in residential. After all that, it would be surprising if these types of corporate/funds vehicles would have to stump up the additional SDLT. Especially after having abolished the entry charge on becoming a REIT.

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By Rebecca Cave
26th Nov 2015 15:03

Exemption for corporates?

Satwaki Chanda wrote:

"The higher rates will not apply to purchases of caravans, mobile homes or houseboats, or to corporates or funds making significant investments in residential property given the role of this investment in supporting the government’s housing agenda."

I interpreted this as meaning the supplementary 3% charge will not be paid by any corporates. Is that your reading Satwaki?

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By petersaxton
26th Nov 2015 12:12

This question has been asked

"The rate of stamp duty on "second-homes" is set to increase. Will this affect home owners who buy a new property before selling their existing home?"

I would hope that some kind of delay is built in but it is a concern as stamp duty has to be paid 30 days after completion.

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By Satwaki Chanda
26th Nov 2015 12:17

SDLT is currently payable within 30 days, but...

they are looking to consult on a shorter filing period of 14 days!

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By geoffwolf
26th Nov 2015 12:20

unthought out consequences

Will there be a refund of additionalstamp duty in the following circumstances:-

A puts residence on market

A completes purchase of next residence

A has not managed to sell or complete the sale of 1st property

A completes sale of 1st property

 

 

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By petersaxton
26th Nov 2015 12:28

Is all this planning done in a void without people who have any knowledge of the subject?

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By Branski
26th Nov 2015 12:40

What is the position North of the Border?

With SDLT having been replaced by LBTT, will that hike apply in Scotland?

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By jonbryce
26th Nov 2015 13:50

Re: What is the position North of the Border?

Branski wrote:

With SDLT having been replaced by LBTT, will that hike apply in Scotland?

 

No, but I would be surprised if John Swinney didn't announce something similar.

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By Rebecca Cave
26th Nov 2015 14:54

not in Scotland

Unless the Scottish Parliament chooses to change the rules for LBTT - watch this space on 16th December.

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By vstrad
30th Nov 2015 12:26

No

Branski wrote:

With SDLT having been replaced by LBTT, will that hike apply in Scotland?

An announcement from Scottish Government is due next month.

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By ireallyshouldknowthisbut
26th Nov 2015 13:33

.

My wife pointed out at lunch that she imagined the reason the legislation has not been released as no-one has thought about any of this yet, and they are relying on us lot to point out the problems.

What is rather chilling to me about the whole thing is that now private landlords are undesirables, housing associations forced to sell off their stocks on the cheap, from whom are people going to rent from exactly in 5-10 years time?  Clearly not everyone is in a position to buy, or indeed it is sensible to buy.  It seems to be "doors open" for large corporate landlords by kicking all the competition aside.  They have struggled thus far as their overheads mean their cost base is much higher than for the private landlord, and so rents need to be higher.  It seems Gideon's mates will be your new landlord of the future. Good by Rigsby, hello faceless corporation "press 2 if your shower is broken and have 45 minutes to wait in a queue", "press 3 if you are being evicted due to a computer error and there is a baliff at the door".

 

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Hallerud at Easter
By DJKL
27th Nov 2015 10:35

You are spot on

ireallyshouldknowthisbut wrote:

My wife pointed out at lunch that she imagined the reason the legislation has not been released as no-one has thought about any of this yet, and they are relying on us lot to point out the problems.

What is rather chilling to me about the whole thing is that now private landlords are undesirables, housing associations forced to sell off their stocks on the cheap, from whom are people going to rent from exactly in 5-10 years time?  Clearly not everyone is in a position to buy, or indeed it is sensible to buy.  It seems to be "doors open" for large corporate landlords by kicking all the competition aside.  They have struggled thus far as their overheads mean their cost base is much higher than for the private landlord, and so rents need to be higher.  It seems Gideon's mates will be your new landlord of the future. Good by Rigsby, hello faceless corporation "press 2 if your shower is broken and have 45 minutes to wait in a queue", "press 3 if you are being evicted due to a computer error and there is a baliff at the door".

 

There are already a few signs that potential  block purchasers are a little more prevalent, I expect institutional money to keep flowing into the sector and private money will continue to exit.

In December we settle the sale of our last flat we are selling (number 60) , having built the flats in the 1990s we will then be out of the residential letting market and we are not alone, I know of quite a few others locally who have done/ are doing likewise. (Seeing prospective  client Monday/Tuesday looking to unwind position from within a company, it is not just individuals seeing the writing on the wall for the sector (we are now pariahs))

I think it is a real shame, we were professional, the tenants knew us by name/ knew who to call if issues, we had negligible disputes in nearly twenty years and some of our tenants stayed with us for over 10 years, but we had little choice- the starting impetus was the attitude of our lenders with later momentum from the writing on the wall re the political climate concerning landlords.

For all those baying against nasty landlords crowding out owner occupiers they will eventually realise that actually a fair number were a lot easier to deal with and fairer than the soon to appear, utility company like, residential property leasing beasts.The recent legislation via governments on this business sector, whilst none individually being a killer blow,  collectively really need to be viewed as a sustained attack on the sector,one that I doubt will diminish.

 

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By Ruddles
26th Nov 2015 14:16
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By SPJH2
26th Nov 2015 14:17

Property developers Caught?

This is aimed at the Buy to Let market and potentially the vast number of empty properties which could be clearing the housing shortage. But what about small businesses who buy the odd property to do up and sell on - presumably they will be caught in this legislation making potential house improvement jobs less economical to take on.

If the legislation allowed for a "Grace" period of say 18 months ownership (to coincide with Main Home Exemption relief) then this would take out a significant amount of the issues raised on this forum.

 

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By matchmade
27th Nov 2015 13:48

Looks like small builders and property developers are caught

I agree: I can't see any exemption mentioned here for self-employed or incorporated builders who, say, buy a clapped-out old house to renovate, or for small developers who buy a house on a large plot with the intention of seeking planning to knock it down or add new housing. The proposals mention consultation over exemptions, but only for companies with at least 15 rented properties. What about small development and building companies?

An 18-month exemption could still catch developers because securing planning and then building the houses could easily exceed 18 months.

 

 

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By Ruddles
26th Nov 2015 15:27

Taxwriter

It depends on whether you consider there to be missing commas - as in "... corporates, or funds, making ..."

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By petersaxton
27th Nov 2015 10:45

What about?

What about two people who buy a property together? One of them owns another property and the other doesn't. With the SDLT be charged on both halves of the sale amount separately?

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By Satwaki Chanda
27th Nov 2015 12:43

Rebecca , yes that was my interpretation

The higher rates won't apply, but corporates/funds will still pay the standard rates.

Though it looks confusing when in the next passage they talk about the consultation asking whether those with funds with more than 15 properties should be exempt from the higher rates. I suspect that this latter question is aimed more at closely held private companies/funds rather than the institutionals with a wide investor base.

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By carnmores
28th Nov 2015 22:24

Peter Saxton raised important points
But in general I am in favour of these type of taxes, we need to make it better for generation rent.

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By petersaxton
29th Nov 2015 02:02

Unfortunately

carnmores wrote:
But in general I am in favour of these type of taxes, we need to make it better for generation rent.

How will it make it better? It would put the rents up and reduce the supply?

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By carnmores
29th Nov 2015 15:25

if we keep chipping away at landlords
They will cash in and more houses available for owner occupiers and house prices might stabilise and rents come down . LAs & Trusts must take the lead in rent control. This is now a must in greater london

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By carnmores
29th Nov 2015 15:26

also the increase in the rent a room
Allowance may increase supply

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By petersaxton
29th Nov 2015 16:56

Allowances may increase supply but disallowed interest and extra SDLT will decrease supply.

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By carnmores
30th Nov 2015 10:15

we will have to agree to disagree Peter

to my mind the housing crisis must be tackled head on , no one measure will change it it needs to be tackled by a sustained and prolonged attack on all allowances for B2L. Houses are primarily homes we still have far too many Rachman style landlords.

re the RARA by increasing it it may make more home owners rent out a room , this is fine , dont confuse interest here this is PPR stuff.

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By steve 12321
30th Nov 2015 12:21

Affordable houses to buy (if that's what people want - and it will be subsidised by taxpayers as costs of land and build costs are what they are) and to rent should be provided by the councils / government. Stop selling off council houses as this reduces stock and build more. Stop Housing Associations in their current form as the govermment then kicks them

Everyone needs a roof over their head - the stain comes due to there being a shortage of houses and population exceeding availability. 

The government are clueless. 

The tax and legislation is too complex, unfair and is counter productive 

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By gpyyow
11th Dec 2015 11:58

Clueless Government

Agree with steve 12321 - government is clueless.  What are the landlords doing about this?  Rollover and 'die'?  If the landlords are the leftwing unemployed hooligans, they will be demonstrating outside parliament and spitting on the MPs.  Unfortunately, as landlords are mostly hardworking, not relying on the state for handouts, the government will get away with bullying them.  Perhaps the government is not so 'clueless' after all - they know who they can continue to clobber and get away with it.

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By Andp
30th Nov 2015 12:50

Yeah and landlords are not the only ones that will suffer. I have a dozen landlord clients and four of them are seriously considering selling up and not purchasing anything new. Crystalising their capital gains prematurely and not having to put up with unsavoury tenants anymore.

They are sucking lemons due to the new stamp duty rules and the progressive loss of mortgage interest relief. 

Well done G.O , as per rushing through new ideas without looking at the bigger picture.

IF....landlords decide they have had enough and sell up , suddenly there is a lot more stock on the market , depressing prices which will effect the stamp duty take anyway and 

where are these tenants then going to live ?

I only hope they can build new homes faster enough to house some of them .

 

 

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By vstrad
30th Nov 2015 14:18

Hardly a catastrophe

Andp wrote:

IF....landlords decide they have had enough and sell up, suddenly there is a lot more stock on the market, depressing prices which will affect the stamp duty take anyway

Landlords and estate agents are warning of a catastrophic impact on buy-to-let but, if prices fall as you suggest, then this will more than compensate for the 3% increase in SDLT.

I'm not anti-landlord, nor am I pro-higher taxes, but the fuss about this measure is totally overblown. It affects only the initial cost of a property, not annual running costs, and 3% is lost in the noise of the random variation in property prices. If the viability of a would-be BTL landlord's business plan depends on whether he can buy a property for £195k rather than £200k then, I suggest, it's not a very robust plan.

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By jonbryce
30th Nov 2015 14:26

Where are they going to live?
Maybe they could buy the properties that the landlords are selling off cheaply?

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By nekillim
30th Nov 2015 13:24

MPs Second Homes

I hope MPs second homes will be caught in this legislation!

I bet they have an exemption!!!

One rule for us, and one for them?

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By petersaxton
30th Nov 2015 14:55

Renters can buy?

So if there are less properties to rent then the renters can buy instead?

Some people don't want to buy and some people can't buy. It also takes a lot longer to buy a property than it does to arrange to rent a property.

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By AndyC555
30th Nov 2015 15:55

Private landlords.....

The percentage of houses owned by private landlords is rising!!!!  It's a calamity the like of which we have never seen!

Really?

From a low of around 11% in the 1980s the percentage of private landlords is now around 18% today.

But 18% is about the percentage of private landlords we had in the early 1970s.

And that was way down historically from earlier years. In the 1950s and early 60s the percentage was nearer 50%. In the 1920s it was nearly 80%.

The percentage of people owning their own home has fallen from a high of around 69% at the turn of his century to around 64% today.

All of today's statistics are slewed by London which has a much higher percentage of rented accommodation than elsewhere - London also has a younger, more transient, more short-term migrant population than anywhere else - so you would expect there to be more people renting.

The idea that rising house prices are all the fault of BTL landlords and that all we have to do is slap lots of tax rises on them and every thing will be all right is nonsense.

I suspect Osborne knows that but is using ill-informed media comment to introduce tax rises in the guise of 'fairness'. 

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By Brian Ogilvie
22nd Dec 2015 11:54

Damn statistics

Andy

The obvious (to me) difference you do not point out in your analysis is UK population size.

In the 1950s,this was 50m and now it is 64m and rising - an increase which dwarfs new housing stock built between those dates -and so in absolute terms the numbers of owner occupiers has reduced and will continue to reduce as they cannot hope to compete with institutional investors 

To me,there are few people saying "all we have to do is slap lots of tax rises on BTL landlords and every thing will be all right is nonsense".The fact that the larger corporates are exempt from the interest restriction and stamp duty changes,and that the population is forecast at 70m by 2027, means that unfortunately  little will change for the prospective owner occupier

Brian

 

 

 

 

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By mikewhit
30th Nov 2015 16:03

Pulling the rug

Do they do this in other EU countries - pulling the rug from underneath established business models such as BTL and freelance working, to name but two ...

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By carnmores
01st Dec 2015 08:36

Houses are NOT a business model

they are for people to live in with security . ASTs should be able to run to at least 3 years with only RPI rent increases permitted. the percentage arguement is also facietous its the actual demand that is the problem

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By petersaxton
01st Dec 2015 10:21

Is food a business model?

Does it matter if anybody provides food for people to eat?

Soon or later people will understand that you only get a supply of something if money can be made unless the government supplies it.

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By AndyC555
01st Dec 2015 16:39

@Carnmores

As Peter Saxon says, why don't your comments apply equally to food? Or Clothing?

Should food price increases be restricted regardless of costs?

You are suggesting imposing state control of housing by state control of rents and supporting penal taxes on private landlords.  Good luck with that as a visit to any country that's gone fully down that road sows just how essential a vibrant private sector is.

If housing isn't a business model where do you stand on house building?  Should house builders be restricted on profits and restricted on interest deductions on the same principles? 

So any argument you don't like is dismissed as 'facetious' without you explaining why?  There is no proof whatsoever that BTL landlords have pushed up house prices, nor that the tax changes will bring house prices down. 'demand is the problem'?  Well the 'demand' from private landlords is not much higher than in the recent past and much lower than earlier than that so it cannot be the demand by private landlords that is pushing up house prices so why are they being targeted under the pretext of 'fairness'?

This is nothing to with fairness, just tax rises with facetious justifications. 

 

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By tedbuck
03rd Dec 2015 13:11

BTL

Interesting comments but what about the other side? If so many new houses go to BTL who will buy them now? Or more appositely will the builders be building them with such enthusiasm if the customers are taking a backward step?

 

Just another thought - why is the Osbourne so keen to drive all the BTL into Companies? What will he do when he has them all there? This man is deceitful and not to be trusted. I'll bet he has another plan up his sleeve once BTLs are incorporated.

 

Finally let us not forget that it would be easy to stop the housing price boom - just put up the interest rates. If investors could get a decent return on their cash they wouldn't need to BTL.

 

So this is a problem caused by Government, Gordon Brown having started it and it has been encouraged by Government since because the SDLT comes in handy. The crocodile tears of the comedy act Cameron and Osbourne are just that - false!

 

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By Ian McTernan CTA
11th Dec 2015 12:05

Ignorance is Bliss

Carnmores totally fails to understand that driving rented properties in to the hands of bigger corporates will lead to higher rents, poorer quality housing, as well as worse service.

Finding an extra 3% stamp duty isn't 'trivial'.  On a £300,000 property, that's an extra £9,000 to find, upfront, before you can make the purchase.  Comparing that to the rise (or fall) in the property's value is not an argument- so what if the rise goes up £20,000 next year, how does that help?  In theory he's made a £11,000 profit at that stage- but in order to realise that he has to sell the property, incurring CGT, selling costs, etc.

I still don't understand why stamp duty is charged on purchase when it would make much more sense to apply to it the person who is in the position to pay it, ie the vendor!

All these tax changes will do is drive a lot of decent BTL investors and property portfolio owners out of the market, reduce the stock of rental properties, raise rents (have to pay for the increased tax charges and restriction on being able to pay the mortgage interest) and reduce the amount spent on repairs and maintenance (can't afford it).

They will be replaced by the dodgy slum landlords, who will be able to continue as their model works on a lower cost base.

A lot of people (I'm one of them) can't save a deposit to buy a house (if you really want to know why, PM me and I'll fill you in...but it might shake your world view of shiny happy clap clap Corybnism) and I for one am not looking forward to big increases in rents and a huge shrinkage in the number of properties available when these changes hit.

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By steve 12321
12th Dec 2015 12:12

How can it be one rule for one and one rule for another purchasing the same property.

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By carnmores
12th Dec 2015 12:38

@Andy @Ian

 Andy there is nothing wrong with state intervention in markets , e.g if we didnt have it in banking everybody would be shouting.

Ian I disagree with buy to let generally , i dont remember mentioning 'bigger corporates' and higher rents so thanks for putting words into my mouth as it were and your implication of ignorance is bliss is demeaning however I agree with a lot of the later part of your 'comments'

You can be big and good  most housing associations are 

I note from todays Times that Buy to Let Landlords are more likely to mortgage default , i dont normally go in for schadenfreude but i do in this case'

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