Property investors deterred by stamp duty hike

Fewer investors could hold back house price growth in the medium to long-term 

Residential property investors have been rushing to snap up homes before the buy-to-let tax hike is introduced in April, as reflected by the unusually buoyant December and January months in the market, with both the number of offers and activity rising sharply. This in turn has pushed up home prices in recent weeks, but signs are that the market could soon slow.

Having long provided double-digit bumper returns for investors, buy-to-let has been an investment phenomenon which has outperformed all major asset classes over the past couple of years, with total annual returns from buy-to-let properties reaching 12 per cent in 2015 or £21,988 in absolute terms – thanks to rising rents and higher property prices.

However, changes to stamp duty, tax relief and new lending rules could significantly reduce the likelihood of being able to make money from letting residential property.

From 1 April, anyone who acquires a home for more than £40,000 to let or use as a holiday home will pay stamp duty on the purchase at a rate three percentage points higher than the standard rate, which will almost treble the purchase tax on a typical £275,000 buy-to-let home from £3,750 to £10,800.
New research suggests that around one in four would-be landlords have been deterred from the idea of investing in the buy-to-let sector by the government’s proposed 3% stamp duty surcharge.

The study has also shown that one in 10 of UK adults have given up on aspirations to own a buy-to-let property while almost a third are still considering whether to do so.

The Mortgage interest relief that landlords can currently claim for interest on buy-to-let mortgage payments when they do their tax return, allowing them to offset the mortgage interest against rental income, will also be reduced from 2017, which will severely eat into many landlords’ rental returns.

What’s more, the 10% cent Wear and Tear tax relief for landlords who rent out furnished homes will also be abolished from 1 April, leaving landlords free to only claim for the amount that they have spent.

A change to Capital Gains Tax (CGT) rules also means buy-to-let landlords will, from April 2019, have to pay any CGT due within 30 days of selling a property, rather than waiting until the end of the tax year, as at present.

Add in the new Right to Rent regulations and tougher mortgage application rules, introduced as part of the European Mortgage Credit Directive, and suddenly buy-to-let is a far less attractive proposition.

Stuart Dyer,’s CIO, said: “The British have strong faith in property as an investment and many see it as a means of providing a pension income. But the government clearly has a policy to reduce buy-to-let and the sharp increase in landlord mortgages revealed by the Bank of England credit survey will probably be a last rush before the gate slams shut.”

Over the past four years, there have been 14 tax changes targeted at residential property and in particular buy-to-let landlords, making the economics of such an investment less and less attractive.