Further to the changes to stamp duty tax made back in the Autumn Statement by George Osborne, Chancellor of the Exchequer, there has been much deliberation on what this means not just for landlords, but for tenants as well. Letting Agents across the country as well as David Cox, the managing director of Association of Residential Letting Agents (ARLA) have all been singing from the same hymn sheet.
Before we jump into what is being said, we’ll go through the changes in stamp duty tax. From the 1st of April 2016, stamp duty tax on buy-to-let properties will increase by a staggering 3%. This, as well as the recent changes to mortgage interest tax relief and the annual wear and tear allowance is catastrophic news for the entire private rental sector.
Many predictions are being made on what affect this will have, the majority believe that increasing tax for Landlords, will increase rents and reduce property standards for tenants. Even worse for tenants, two in five letting agents are predicting that property supply will decrease drastically over the next five years according to ARLA’s monthly Private Rental Sector Report. This will leave a property void in the rental market, meaning the remaining Landlords have the opportunity to be even more selective with tenants, and can certainly raise the rents even further due to the high demand. These thoughts are echoed by ARLA’s managing director, David Cox, as he said:
“The news in today’s Autumn Statement that the Chancellor will increase stamp duty tax on buy-to-let (BTL) properties by 3% in April 2016 is catastrophic news for the private rental sector, especially following the recent changes to mortgage interest tax relief and the annual wear and tear allowance. Increasing tax for landlords will increase rents and reduce property standards for tenants. To make owning a BTL property financially viable, landlords will need to pass on the increased stamp-duty costs to tenants, who will in turn see less spent on maintaining their property and of course see increased rents. The changes will also deter new landlords from entering the market, pushing the gap between dwindling supply of available property and growing demand even further apart, which will also – in turn – push up rental costs. The Capital, where demand is so strong and last year’s stamp duty changes hurt, rather than helped, will see tenants having the greatest burden to bear.”
Where Landlord’s would have been able to receive a maximum tax relief of 45% and 40%, this has now drastically dropped to 20%. So an investor with a £150,000 buy-to-let mortgage on a property worth £200,000 is likely to see their net annual profit collapse, from £2,160 a year, to just £960. But of course, this isn’t taking letting fees and “voids” into account. Once these are included, any profit is likely to disappear and you’ve still got to take maintenance, renovation, wear and tear, and the risk of rising interest rates to bring into the equation, all of which will mean that many landlords will start making losses on their properties.
Currently, the rate for stamp duty is 0% on properties up to £125,000, then 2% on any sums over and about £125,000 to £250,000. Properties sold at £250,000 to £925,000 pay 5%, then it is 10% above that. These rates will remain the same for standard residential buyers – but 3% extra will be added if the property is to be used as a buy-to-let or second home. Please see our table below for more information.
Value property | Standard Residential | Buy-to-let |
Up to £125,000
| Zero | 3% |
Between £125,001 to £250,000
| 2% | 5% |
Between £250,001 to £925,000
| 5% | 8% |
Between £925,001 to £1.5mil
| 10% | 13% |
Above £1.5mil
| 12% | 15% |
As rental increases continue to fall, with less than one quarter of (23%) of Letting agents reporting rent increases for tenants in November, down from 25% in October – and the lowest this year, many eye-brows are being raised as to whether all of these drastic changes are required. Leading to the main question on everyone’s lips, is whether this change will cause more harm to tenants and landlords alike, with only first time buyers benefiting?
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