Bob Young, chief executive of Fleet Mortgages, believes applying the 3% stamp duty surcharge to all landlords while cutting corporation tax is a clear incentive to invest in buy-to-let through limited companies.
There was plenty in today’s Budget to get your teeth into but it makes sense here to focus purely on the buy-to-let and commercial sectors, and within both there are changes afoot and detail to be chewed over.
In terms of the extra 3% stamp duty charge for those purchasing additional properties, we now have the detail we were waiting for.
There have been some notable changes to the original consultation, not least of which is confirmation there will be no exemptions for what Osborne described as ‘larger investors’.
The original thinking was that larger purchasers of additional property needed an exemption as, without it, there would be a considerable impact on housing supply.
Actually, I think we all agree this was just a further attempt to move the private rental sector away from the ‘amateur landlord’.
At the time we were presented with this 15 property rule, whereby those who already owned 15 properties or were planning to bulk-buy 15 properties, would be exempt.
Well, this isn’t the case anymore. The proposed rule has been completely scrapped which clearly won’t be welcomed by large-scale landlords/purchasers but is at least fair across the board for any purchaser of an additional property.
There have also been a number of welcome tweaks – purchasers who have not sold their main residence by the time they purchase another one, have 36 (not 18) months to do so and claim their stamp duty refund.
Married couples, living separately, will not be treated as one unit meaning they can purchase a further main residence and not be impacted.
Plus those who, for example, inherit a 50% or less share in a property will not have this counted as an additional property.
All in all, in lieu of the entire proposal being scrapped I think we have a relatively fair set of proposals – for a start individual landlords with only a small number of properties will not feel even more hard done by just because they don’t own large portfolios.
I suspect the activity levels in the buy-to-let sector will fall back slightly over the next quarter but I’m not expecting the proposals to have a long-term, sustained impact.
I read this morning that capital tax gains was to be cut in order to incentivise landlords to sell their properties. CGT has been cut but this doesn’t apply to residential property so I’m not sure this will have that impact.
The changes to commercial stamp duty levels to bring them into line with the residential system are also likely to be welcomed, unless you are purchasing over £250,000 when it’s a 1% increase – will this have the same effect on ‘higher end’ commercial property sales activity as it has done in the £1m-plus residential market?
One final point regarding the buy-to-let market. The focus on small businesses within this Budget should, one would think, increase what we might call the ‘professionalisation of buy-to-let’.
The continued planned cuts to corporation tax, which will see it drop to 17% by April 2020, will undoubtedly add to the interest in using limited companies to purchase buy-to-let property.
Coupled with the fact that, by then, higher-rate taxpayers will only be able to claim basic-rate tax relief on their mortgage interest payments and you can see why the corporate vehicle route for property purchase is likely to grow in popularity.