Recent Spring Budget creates furious reactions from landlords who feel targeted by specific tax changes.
The recent government budget implemented a range of tax cuts aimed at small business, entrepreneurs, and savers. The tax itself, paid on realised gains on investments, was reduced from 18 to 10% for basic rate tax payers and from 28 to 20% for those in higher brackets.
However, buy-to-let landlords will not benefit from these lower rates for their gains made on residential property sales. Instead, the existing rates have been maintained, which are equivalent to an 8% surcharge.
We can illustrate this better with an example in numerical terms. If a landlord makes a £50,000 gain made from selling a second home or buy-to-let property, it will leave them with either £41,000 (basic rate taxpayer) or £36,000 (higher rate taxpayer).
Yet, for investments in other assets that are not property, they would receive either £45,000 (basic rate taxpayer) or £40,000 (higher-rate taxpayer) after Capital Gains Tax.
This is not the only attack on the buy-to-let sector from the Chancellor. Back in the Autumn Statement, the general consensus was that larger investors with over 15 properties being purchased would be exempt from the 3% stamp duty surcharge. However, the Chancellor has clarified that all investors will be considered ‘professional’ landlords and will therefore be eligible to pay the Stamp Duty.
The immediate benefits from the government budget will be a predicted income of £1 Billion by 2020. It seems they also believe it will provide economic benefits and somehow help the growing housing crisis in the capital. Apparently, Osborne believes that landlords will sell to owner-occupiers, which means that they will also need to evict the current tenants. This could lead to a spike in social issues such as homelessness if these tenants are unable to buy a property or find rentals.
Various experts, such as Lord Flight, have stated that the government should be supporting investment in the sector, not discouraging it. The private sector created around 83% of all new dwellings in England from 1996 to 2013. Policies like these will only reduce the supply, as the private sector looks to other regions or waits for any future tax reductions. Only time will tell whether these policies will be successful, but, currently, the reactions from the property industry and property professionals appears dissuading.
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