The Chancellor, George Osborne, has today announced a series of measures that will impact on the property industry.
- Mortgage interest relief for buy-to-let homebuyers to be restricted to basic rate of income tax
- An increase in the inheritance tax threshold to £1m for married couples by 2017.
- Rent A Room tax relief increased to £7,500 pa after 18 years at £4,250 pa;
- Making council and housing association tenants in England who earn more than £30,000 – or £40,000 in London – pay up to the market rent
- Confirming Help To Buy ISA and the expansion of Right To Buy for housing associations, plus new planning reforms to be announced on Friday;
- Non-doms with residential property will pay same tax as UK owners and permanent non-dom tax status will be abolished (coming into effect in April 2017) – this may have a major effect on high-end residential markets, especially in prime central London;
- Increasing HMRC’s powers to pursue tax avoidance, including that conducted by overseas-based companies operating in the UK.
Some Agents have expressed disappointment at the result to restrict mortgage interest relief for Buy To let investors to the basic rate income tax. So, for the high income tax rate landlords, interest payments of £100 only cost £55 after tax relief, but they will cost £80 when the plan is wholly introduced in 2020.
Lucian Cook, head of research at Savills believes this is likely to relax the mortgaged Buy To Let sector as it will hit the sale of appropriate properties and their letting out. He says “Together with caps on housing benefits and the prospects of medium term interest rate rises, this will also put a squeeze on highly leveraged buy to let investors in lower value markets. There are currently just under 5.2 million private rented dwellings and just over 1.6 million buy to let mortgages”.
The executive director of the Intermediary Mortgage Lenders Association, Peter Williams says “The idea that tax benefits have been a big driver for growth in the private rental sector is flawed. Unlike homeowners, private landlords are still subject both to capital gains tax and tax on rental income, subject to allowable deductions for most costs. It also overlooks the fact that two in three properties entering the private rental sector since 2007 have done so without the support of buy-to-let mortgages”
Glynis Frew of Hunters Property Group highlights that “We were disappointed …. This will discourage new landlords from entering the sector and will result in a lack of stock. This will inevitably lead to higher rents as at the end of the day landlords are business people and will need to compensate for this”.
The formal lettings sector may also be distrustful of the news announced by the Chancellor that after 18 years, the Rent A Room tax free income threshold is being increased.
Matt Hutchinson, director of online house and flat share, Spareroom.co.uk. says “The change … has potentially huge implications for the scarce supply of affordable rented accommodation. There are an estimated 19m empty bedrooms in owner-occupied properties in England alone. Freeing up just five per cent of those rooms would accommodate almost a million people”.
Permanent non-dom tax status has also caused some issues with the announcement that it will be abolished from April 2017. This does not eliminate the tax status, but individuals who have lived in the UK for 15 of the past 20 years will lose the right to claim it, bringing in £1.5 billion in extra tax per year if the government predictions are accurate.
Liam Bailey, the global head of research at Knight Frank, says: “These reforms follow a series of changes in recent years that make it increasingly difficult to argue prime residential property is under-taxed. The relatively subdued nature of the prime London market since December’s stamp duty changes highlights the risk of higher taxation on market demand and also government revenues.”