Our residential property team has already reported on the stamp duty land tax (SDLT) increases which the Chancellor announced in his Autumn Statement on Thursday.
From 1 April 2016, higher rates of SDLT will apply to the purchase of additional residential properties (such as second homes and buy-to-let properties) for chargeable consideration exceeding £40,000. The government is due to publish a consultation document on the policy detail in the coming months.
This new announcement, coupled with the announcement in the Summer Budget that residential landlords will no longer be able to deduct the cost of their mortgage interest from their rental income when they calculate a profit on which to pay tax, means that landlords of portfolios of residential properties purchased with bank finance could face a significant reduction in their income.
The changes may not be the final nail in the coffin of buy-to-let businesses that they may have first appeared to be. The government appears to recognise that it is vital for the rental market in the UK to be supported, as otherwise a crisis of high rents and a shortage of available rental housing could cause more problems than those the Chancellor is proposing to solve by introducing the new measures.
The limitation on tax relief for mortgage repayments does not currently apply to limited companies and many property investors are therefore finding that it is worthwhile incorporating their business to continue to take advantage of the available tax relief. It was feared that George Osborne would extend the limit on relief to companies in his Autumn statement, but this did not happen.
The additional 3% SDLT will be payable by companies as well as individuals, which could lead to prohibitive levels of tax on corporate purchases of more expensive residential property (over £500,000) of up to 18%.
The Chancellor announced, however, that the increased rates will not apply to corporate or fund purchasers that make significant investments in residential property. The consultation mentioned above will consider whether the ownership of more than 15 residential properties is appropriate as a “significant investment” for these purposes. The higher rates will also not apply to acquisitions of caravans, mobile homes or houseboats.
With the consultation will hopefully come clarity about the government’s longer term intentions with regards to the buy-to-let market.
Myerson is an independent law firm based in South Manchester, near Manchester Airport. They represent businesses and individuals in Manchester, Cheshire, the UK, the EU and beyond.
Myerson’s commercial and residential property teams have a vast range of experience in dealing with all types of investment portfolios. They work closely with corporate colleagues and specialist tax advisers to ensure that your property business is structured in the most tax-efficient way. Please do not hesitate to contact us to discuss your business and any concerns you may have about the changes announced by the Chancellor and the effect these may have on you.