Buy to Let Landlords are Hit Again in the Budget

Neezam Romjon, Senior Mortgage Adviser at The Mortgage Broker LTD, offers his advice on a number of common

Q. What impact has the latest Budget had on Buy-to-Let Landlords?

A. Would-be first-time buyers are no doubt breathing a sigh of relief at the announcement in the Budget that stamp duty would not be payable when they purchase their first property. The relief on stamp duty was undoubtedly one of the headline announcements in Chancellor Philip Hammond’s Budget statement last week. However, landlords of buy-to-let properties would be forgiven for not catching the brief announcement regarding an indexation allowance freeze.

Most people are aware of capital gains tax, even if they have not been directly affected by it. Up until now, there has been a difference in the amount paid in tax by individuals who sell assets, and companies that sell assets. This means a company selling a £200,000 property would pay less in capital gains tax than an individual selling the same property for the same amount. This occurs because a company can account for the inflation built into the price rise that had happened over the time the property was owned for.

This inflation is what the Chancellor was referring to when he mentioned the indexation allowance freeze in the Budget.

How does this apply to landlords?

The changes in tax relief offered on mortgage interest have led lots of landlords to quit trading as individuals and to take on a limited company format instead. This means they should pay less in capital gains tax than an individual if they were to sell one of their rental properties. However, from January next year, this difference will be taken away. Any price rises seen from January 2018 onwards will apply under the new rules.  

Tough times for landlords

“This is the latest ruling that has led some landlords to feel as though they are getting battered from all sides,” said Senior Mortgage Adviser at The Mortgage Broker LTD. “The change does mean companies won’t have an advantage over individuals when it comes to capital gains tax. However, it also means plenty of landlords who swapped to a limited company structure will now have additional capital gains tax to pay should they decide to sell one or more properties in the future.”

No immediate penalties

The change means everyone will be treated the same when selling properties over and above their main home. Furthermore, the timing of the change means there will be no immediate cost for anyone who sells up now or in the future. Higher tax bills will eventually be felt by limited companies, including landlords who decide to sell one or more properties, but this won’t be noticeable for a while yet.

However, landlords of buy-to-let properties would be forgiven for feeling as if this is just one more issue to deal with. Some have left the market altogether, while others have reduced the number of properties they are renting out. With higher capital gains tax bills in the future too, could this mean yet more landlords decide to quit now rather than later, when larger bills will await them?

Neezam Romjon

Mortgage Adviser