The Chancellor has launched another attack on the buy-to-let sector in today’s Budget argues the RLA.
Proceeds from investment in residential properties will, from 6th April, attract capital gains tax (CGT) at 8 percentage points higher than nearly all other asset classes which will deter would be landlords from investing in the sector.
With forecasts that one million new rental properties will be needed over the next five years whatever the Government does to encourage home ownership, this will lead to further shortages driving up rents.
Whilst Ministers have argued that landlords are crowding out home owners from the housing market, research by Professor Michael Ball of Reading University has shown that many of the properties landlords invest in are not wanted by first time buyers. By choking off investment, the spectre of housing blight and empty homes that landlords are good at bringing back into use is very real.
The Residential Landlords Association (RLA), supported by the Royal Institution of Chartered Surveyors, had called for CGT relief where a rented property is sold to a first time buyer or sitting tenant and then re-invested in a new rented property. Research for the RLA had found that 77% of landlords would consider selling properties if such a policy was adopted.
Commenting on the Budget, RLA Chairman, Alan Ward said:
“The Chancellor could have used this Budget to encourage and support landlords to invest in much needed new homes to rent.
“Instead he continues his attack on rented housing despite all the evidence showing that landlords are taxed more heavily than home owners and that they buy and improve many properties that otherwise are left empty.”
- The Savills research can be found here
- Michael Ball is professor of urban and property economics at Henley Business School at the University of Reading. In a recent article for City AM, drawing on research for the RLA he wrote:
“Tax changes that lead to lower returns threaten to reduce investment significantly in much-needed new homes to rent, especially when returns from other assets may start to rise. There is already a shortage of properties to rent in many areas and the consequence can only be higher rents. This will inevitably make it harder for first-time buyers to save the funds required for a deposit to buy a home of their own.
“But will homes be freed up for first-time buyers? This is less likely than has been suggested as many rental properties, such as houses in multiple occupation, are often unappealing to this group, as are the areas where renting is concentrated. The main competitors faced by first-time buyers are existing home owners, whose tax breaks and high own-equity make them strong players in the market-place.”
The article is available here
- On the 8th March, the Director of the Institute for Fiscal Studies, Paul Johnson noted in evidence to the House of Lords Economic Affairs Committee inquiry on the UK housing market:
“If you buy to let, you pay income tax on the return and capital gains on what comes out when you sell it at the end, which is not the case for owner-occupiers. The current system is clearly more tax favourable towards buyers and owner-occupiers than it is towards buy-to-let landlords and renters. The tax system is not, and was not, even before the recent changes, more generous to people buying to let.”
The transcript can be found here
- In its report on the Autumn Statement/Spending Review 2015 the cross-party Treasury Select Committee warned that:
“the stamp duty surcharge is likely to reduce the supply of privately rented properties, and hence result in higher rents.”
It went on to warn:
“Were the measures taken to curb buy-to-let to have a substantial effect, they would come at a cost to the wider economy. Access to a well-functioning, affordable housing market, including for private rented properties, has been widely recognised to be crucial to labour mobility, and hence the overall efficiency of the labour market.”
The report is available here