Countdown Begins to Changes in the Buy-To-Let Market

You will have seen already that last year’s Autumn Statement saw the introduction of a number of new measures, which could have a significant effect on the booming buy-to-let property market.

These measures come into effect from April 2016, and as such do not leave potential property investors much time to ensure their purchases are complete before the new rules come into force. Among the new measures is the introduction of a 3% surcharge on Stamp Duty Land Tax (SDLT) for buy-to-let properties and second homes. This will see residential property investors charged significantly more when purchasing new homes. Under the new rules a house bought for £275,000 as a second residence, or as a buy-to-let investment would incur SDLT charges of £12,000 on the purchase of the property, which is £8,250 more than would currently be paid.

These proposals to increase the SDLT rate could drastically affect the profit margins of many in the property industry. Residential properties purchased by trustees, apart from where there is a life interest or interest in possession, and residential properties purchased by corporate or collective investment vehicles. There is a suggestion for an exemption where there has been a bulk purchase of at least 15 residential properties in one transaction, as has one where a company owns 15 properties already. The consultation document states that the higher SDLT rates will apply to most purchases above £40K of additional residential properties in England, Wales and Northern Ireland. Around 10% of transactions are expected to be affected. The government is seeking evidence as to whether making such an exemption available to individual investors would support the governments housing agenda. The intention otherwise is that the first purchase of a residential property by a company or collective investment vehicle is subject to the higher rates of SDLT. Thereafter, as purchases of further properties would also be subject to the additional 3% charge, apart from where bulk purchases can be made, this would add a significant uplift in costs for corporations.

While appreciating that the new proposal may encourage investment in new sites, it may do little to encourage corporates to invest in and improve other housing, such as small holdings being sold off by individual landlords trying to leave the industry. Where such properties are bought up by institutional investors, the additional SDLT charges are likely to lead to higher rents rather than additional supply. It should be recognised though that all options appear to remain open and the consultation has asked for all comments around an exemption.

Capital Gains Tax

Alongside this new measure, it was announced that from April 2019, Capital Gains Tax (CGT) on sold properties will now be due within 30 days of the transaction. The current rules require payment of CGT on or before 31 January following the end of the tax year in which the sale of an asset takes place. For example, under the current rules a disposal of an asset in the 2014/15 tax year means that capital gains tax will be due for payment on or before 31 January 2016.

Thursfields are able to offer high quality legal advice on the buy to let market and the changes ahead. For further advice and to speak to one of our property experts call 01905 730450.

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