Why the Budget has dealt a fresh tax hammer blow to buy-to-let investors
Things seem to be going from bad to worse for Britain’s landlords. House price growth slowing to almost a crawl over the past year or, in the case of some parts of London, property values falling through the floor. Tighter lending criteria for buy-to-let mortgages. Declining tax benefits from HM Revenues and Customs.
It’s no surprise to see that landlord confidence has been diving in recent months, and Chancellor of the Exchequer Philip Hammond’s Budget announced yesterday has provided another reason for many buy-to-let investors to wring their hands in frustration.
Another stinging cost
So what happened? Well, in a fresh attempt to raise tax revenues and curry favour with the country’s generation of renters ‘Spreadsheet Phil’ said that “we re-commit today to keeping family homes out of capital gains tax, but some aspects of private residence relief extend it beyond that objective and provide relief for people who are not using the home as their main residence.”
This led to Hammond declaring that, from April 2020, the Government “will limit lettings relief to properties where the owner is in shared occupancy with the tenant, and reduce the final period exemption from 18 months to nine months.”
What this essentially means is that individuals who are letting out a property that was, at some point previously their chief residence, will no longer enjoy a tax break when capital gains tax is calculated upon the eventual sale of said residence.
From the 2020/2021 tax year, only those landlords who rent out a portion of the property to a tenant while living there themselves will be able to apply for any sort of relief. The maximum you can claim in lettings relief stands at £40,000, so many landlords stand to lose an extremely large chunk of cash when they come to sell up.
On the ropes
This week’s Budget showed that the Treasury has no intention of dialling back its attack on the buy-to-let sector. The lack of available homes for first-time buyers is becoming an increasingly hot political issue, and the Government has already sprayed landlords with a variety of punitive measures, from higher stamp duty charges to slashing other forms of tax relief in recent years.
And with each party in the House of Commons seeking to gain the high ground with millions of frustrated would-be purchasers — and voters — conditions are only likely to get tougher for proprietors in the years ahead. Indeed, other restrictive ideas floated during the recent annual party conference season include everything from higher stamp duty charges for overseas investors, through to rent caps.
In the current political and economic environment, I believe that taking the plunge in the buy-to-let sector is far too risky an endeavour. I believe that, if done correctly, stock investment is a much less risky way of putting your money to work today. And there’s no shortage of great shares out there to get started with, and the share market sell-off of recent weeks is leaving plenty of bargains just waiting to be snapped up.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.