The Budget came and went without any additional nasty surprises for residential landlords.
In my opinion, this is a good thing because it is important that we are given time to evaluate how the stamp duty and tax relief restrictions affect the industry before any more measures are introduced.
In fact, in a throw-away comment relating to ‘the sharing economy’ the Chancellor announced that “the first £1,000 of income from property – such as renting a driveway or loft storage – will be tax free”. Unfortunately, so far this has not been backed up by any supporting documentation on the HMRC website.
My brother Simon, who is also the finance director at Mortgages for Business, predicts with a fair degree of confidence that unfortunately, this is not a tax break for buy to let landlords.
He suspects its availability will be tightly defined to ensure that it only applies to income arising from the likes of AirBnB where a house-owner receives rental income from renting out their home.
This will be in addition to the tax free allowance of £7,500 for renting out a spare room in your home.
At the same time as the Budget, the final policy design for Stamp Duty Land Tax on residential property was announced.
As anticipated, the 3% surcharge on additional residential property comes into effect on 1st April and there will not be any exemption for large or corporate investors as had been mooted originally.
However, it is worth reminding you that for purchases of six or more residential properties bought in a single transaction, the purchaser can choose to apply either the residential rates of SDLT with multiple dwellings relief applied, or the non-residential rates of SDLT to the entire transaction.
Mixed use properties are subject to the non-residential SDLT rates, so it was relatively good news that the Chancellor announced that the previous ‘slab’ rate system was to be immediately replaced with a ‘layered’ tax.
For transactions valued at less than £1,050,000 this will result in a reduction of SDLT, whereas as those above will incur an extra 1% on the excess over £1,050,000.
The copy deadline for this article comes before the end of March, so I am unable to give you a final report on how well (or not) buy to let purchase applications were processed and completed before the 3% stamp duty surcharge is introduced.
I can tell you that my team is working overtime to ensure that cases get over the line. I have also heard from lenders that they too are working overtime and intend to work over the Easter weekend to ensure that customers’ expectations are met.
I’m not entirely certain that the same thing can be said of solicitors. It will be interesting to see what fall out occurs and you can rest assured that both my BTLWatch cohort Ying Tan and I will voice our opinion in this column.
Moving away from taxing issues, there have been some criteria changes and a bit of price shuffling among lenders of late.
Kent Reliance has reviewed its policy regarding “transfers”: Investors who own property personally will now be allowed to “transfer” it into an SVP or LLP structure, subject to the borrower meeting Kent Reliance’s other criteria.
Director’s loans or gifted equity for the difference between the new loan amount and the value of the property will also be permitted. Additionally, borrowers will be able to borrow funds for stamp duty, capital gains tax and legal fees – because after all, a “transfer” is actually a sale.
Accord Mortgages, Paragon Mortgages and Virgin Money have all introduced new products or refreshed existing ranges. Paragon’s online arm, Mortgage Trust has announced its intention to offer a range of consumer buy to let products now that MCD has arrived.
The Mortgage Works tightened its policy regarding HMOs reducing the number of letting rooms to seven from nine, and increasing the minimum property value from £50,000 to £100,000. It has also upped the minimum requirement of leasehold properties from 55 to 70 years.
Looking ahead, I anticipate that Q2 and possibly Q3 will be less frenetic than the first three months of the year. I expect Landlords will adopt a more considered approach to property investing, and lenders and brokers will take stock of recent events, lick wounds, make adjustments and ultimately, move on.
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