Buy-to-let is a lot tougher than it once was. Landlords’ returns have been squeezed by the introduction of the 3% stamp duty surcharge and the phasing out of mortgage interest relief.
However, for many people the idea of investing in property continues to appeal, despite the barriers thrown in the way of landlords.
But the government still seems intent on slowing the buy-to-let market, illustrated by the latest measures announced in last week’s Budget.
The statement delivered another tax hit for landlords, which will undoubtedly result in higher tax bills for many buy-to-let investors, including ‘accidental landlords’.
Based on the government’s own scenario, The Guardian estimates that someone selling a property they once lived in, but then rented out for a while, could typically end up more than £13,000 worse off than under the existing rules, as a result of two changes announced by the Chancellor last Monday.
Philip Hammond unveiled that lettings relief, which currently provides up to £40,000 of relief (£80,000 for a couple) to people who let out a property that is, or has been in the past, their main home, will, from April 2020, only apply where the owner is sharing occupancy of the home with a tenant – effectively scrapping this benefit.
The other change relates to capital gains tax (CGT), and in particular the ‘chargeable gain’, which is your gain, minus any private residence relief (PRR) you may be eligible for.
Currently, landlords do not pay any CGT for the years they lived in the property, plus an additional exemption for the final 18 months that they owned it. But this final period exemption will now be reduced to nine months.
Ian Dyall at financial planning firm Tilney described the tax change as “another nail in the coffin for buy-to-let”.
Meanwhile, Sam Mitchell at online estate agent Housesimple believes that many people who rented out their previous home and has equity locked up in that property will now be thinking “it’s best to sell sooner rather than later if they want to avoid a massive capital gains bill further down the line”.