What does the 3% stamp duty surcharge mean for landlords looking to finance buy to let property? Gavin Richardson gives his opinion and shines some light on possible routes forward.
So, the Boy George has cracked down on private landlords again with the announcement that from next April, buy to let purchases will attract an additional 3% Stamp Duty Land Tax (SDLT).
Following shortly after his decision to reduce mortgage interest relief for high rate tax paying landlords, it is clear that George Osborne has the mandate to go after the landlord community.
Landlords are an easy target and are often in my opinion, used as the scapegoat for a much wider housing problem. With Labour in turmoil and leaping to the left, the centre ground is up for grabs - and so it should be no surprise that George has jumped on the belief that first time buyers are being squeezed out by landlords. As long as the government continues to fail to build enough houses, it needs a healthy private rental sector!
So what effect will these tax increases have?
My immediate reaction is that this will undoubtedly lead to an increase in rents as landlords look to pass on increased costs. The increase in SDLT may also deter new landlords entering the market which will reduce the supply of rental properties which in turn could also push up rents.
The established, professional landlords who are in it for the long term will, in my mind, continue to grow portfolios and will factor in the increased costs - - they will undoubtedly negotiate harder on purchase prices post April and those looking for buy to let finance may well look to borrow more to cover the increased SDLT. With rents being pushed up, there should be sufficient rent to achieve higher loan amounts for landlords.
Another effect will be the rush to purchase property before April and we are bracing ourselves for the inevitable increase in enquiries and application as we head towards the end of the tax year. What will be interesting is how many landlords look to purchase property in a corporate structure.
Regular readers of our blogs and email alerts will be aware of the hot topic of limited company buy to let and we have certainly seen an increase in enquiries about limited company products as landlords look to mitigate the reduction in the mortgage interest tax relief. In the statement yesterday, George Osborne announced that corporates and funds holding at least 15 properties may be exempt from the SDLT increase.
I have also been speaking to some landlords who are considering transferring personally owned properties into a corporate structure to mitigate the reduction of mortgage interest relief. For most landlords this will almost certainly create a taxable event meaning that Capital Gains Tax and SDLT would be payable as the limited company in effect "purchases" the property from the individual.
What to do next
If you are an individual landlord or partnership with a large, well established portfolio and you can prove that you are running a proper property business (e.g. employ staff, etc) then you may be able to incorporate the business without creating a taxable event. As I always say, I am not a tax expert and would therefore advise all landlords to speak with their accountants and tax advisers before making any firm decisions.
What is clear though is that if you are looking to transfer property into a company name and if this will result in payment of SDLT - you must make sure that you complete the exercise before April.
There are only eight or nine buy to let lenders offering products to limited companies and as such, they are likely to be swamped in the run up to the deadline.
Bearing in mind that the average processing time on a buy to let mortgage from application to completion is 6-8 weeks when things run smoothly, landlords need to act NOW to ensure that they don’t get held up in processing queues brought on by increased demand.
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Our latest BTL Tax Calculator. Download this spreadsheet to see how the restrictions in BTL mortgage interest relief and the 3% SDLT surcharge could affect your portfolio.