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Bye-bye-to-let? Property Taxes & the ‘Dinner Party’ Landlord

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

An Englishman’s home, so the saying goes, is his castle.

Over the course of recent decades, though, many Englishmen and women acquired second or third homes which often became a handy source of extra income.

Some were gained by inheritance, some former residences were retained as the owner moved up the property ladder and others simply bought as more and more individuals decided to become what were commonly described as ‘dinner party landlords’ (that is, those individuals for whom being rental property owners was not their main profession).

The growth in such amateur landlords was, of course, partially halted by a global economic downturn of 2008 which had resulted in a decline in property values.

Nevertheless, when markets recovered, so too it seemed did the fortunes of residential landlords. 

That prompted a claims from some quarters about families being unable to get onto the housing ladder because available homes were snapped up by those expanding their property portfolios.

In response, the Government has introduced a series of measures designed to improve the propects for first-time buyers.

From April 2016, anyone buying an additional home has had to cough up a three per cent premium on the normal rates of Stamp Duty Land Tax (SDLT) under a change introduced by former Chancellor of the Exchequer George Osborne.

Whilst that had obvious consequences for people intending to buy, his successor, Philip Hammond, used last month’s Budget to further amend the criteria relating to something known as Principal Private Residence relief (or PPR relief, for short) with consequences for those selling residential property.

For those who have always occupied a property as their main residence and sell it, then most people are aware that any gain is likely to be exempt for Capital Gains Tax (“CGT”).

However, there are many wrinkles in the legislation and some of these  allow one to qualify for relief in periods of non-occupation. Most commonly, for a property that has at any time been occupied as the main residence, then there is a grace period for the final period of ownership which still qualifies for the relief.

Prior to 2014, it was the the final three years of their ownership. This was firstly cut in two in 2014 such that it was only 18 months.

However, Mr Hammond’s new initiative means that this has now been reduced to only nine months, a move which has been described as “another nail in the coffin of buy-to-let” with apparent good reason.

Research conducted on behalf of The Times has found that the number of landlords in the UK has reduced by 120,000 in the three years since George Osborne’s published details of his SDLT premium.

The same newspaper concluded that thousands more were still “trapped” into renting despite no longer wanting to be landlords because they were unable to sell their properties.

Recent statistics from HMRC suggest that some buy-to-let investors have tried to ride out the effects of the move and that has meant it becoming a considerable earner for the Treasury.

At the end of November, the Revenue revealed that the amount of SDLT recouped during the third quarter of this year was £364 million more than in the previous three months.

The effect of Mr Hammond’s change – due to come into effect in April 2020 – will, however, impact on landlords looking to dispose of some or all of their rental properties and that, it is thought, will deter would-be landlords from becoming involved in the first place.

It’s a shift which has generated many enquiries for myself and my colleagues at ETC Tax from landlords across the country. 

Even those foreign nationals who might have believed that a weakening pound represented an opportunity to make a cut-price investment in the UK have been affected.

A speech by the Prime Minister, Theresa May, at this year’s Conservative Party conference announced a further SDLT surcharge of between one and three per cent for non-residents looking to buy UK property ().

Indeed, perhaps it is only foreign investors in UK property who have fared worse than UK based landlords over recent years!

Perhaps unsurprisingly, the combination of Brexit-related uncertainty and a tougher tax regime is beginning to bite. One study suggested that the share of new lettings accounted for by landlords based outside the UK has halved over the course of the last eight years.

The domestic housing market is complex and very fluid with many factors influencing price and availability.

At a time when the UK’s population growth is not matched by the amount of available housing stock, private landlords play an important role in ensuring that many families unable to buy a house have a home of their own.

A reduction in their numbers does not necessarily solve the underlying issues.

If you have any queries regarding Landlord tax, or other property issues, then please do not hesitate to get in touch.

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