UK Chancellor George Osborne recently announced in the Autumn Statement that the government is planning to raise tax on buy-to-let properties and second homes.
The Office For National Statistics’ September 2015 House Price Index suggests that average UK house prices rose 6.1% in the year to September 2015; up from 5.5% in the 12 months to August 2015. Meanwhile, new data from Nationwide indicates that the UK’s supply of residential property has fallen to its lowest level since the 1970s.
Increasing demand coupled with ever-decreasing supply has fuelled the growth of the UK’s rental market. According to Property Wire, average rents rose 3.5% across the country throughout the third quarter of 2015. Strong demand for rental space has facilitated the rise of the UK’s buy-to-let residential property sector. Landlords saw buy-to-let returns shoot up almost 1,400%, according to a study commissioned by lender Landbay, between 1996 and 2015.
Critics have suggested that investors who are purchasing residential properties just to rent them out to tenants are squeezing cash-strapped first time buyers out of the market. Osborne announced in the government’s Autumn Statement that Whitehall will tackle the problem by introducing an additional 3% stamp duty land tax on buy-to-let properties and second homes from April 2016.
Reuters reported that the Chancellor said to Parliament that “people buying a home to let should not be squeezing out families who can’t afford a home to buy.” He went on to say the government will launch a consultation to examine this proposed tax change, which will be paid by the buyer of a property. However, Whitehall will make sure the tax doesn’t impact corporate property development.
Passing on the cost
This follows in the wake of the Chancellor’s decision to cut mortgage tax relief for buy-to-let landlords in the Emergency Summer Budget. Critics of that measure said that landlords would just pass extra costs on to tenants; they’re saying the same thing about this tax. Brian Berry, the chief executive of the Federation of Master Builders commented that “buy-to-let buyers will offset the cost and the danger is that might be passed on in terms of higher rents.”
In Simon Morris’ opinion, raising taxes on buy-to-let landlords may only have a limited impact on the sector. There is precedence to support this theory; the decision to reduce buy-to-let mortgage tax relief hasn’t dampened market activity. Demand for rental accommodation is so high in the UK right now that buy-to-let landlords may continue to reap significantly high returns as we move into 2016.