In his autumn statement George Osborne sent shockwaves through Mid-Somerset landlords when he announced that private landlords buying another property from April 2016 will have to pay an additional 3% stamp duty on top of the standard rate. This has led some Mid-Somerset landlords to question the future viability of buy-to-let as an investment.
As an example if you were to buy a buy-to-let property for £275,000 today your stamp duty bill will be £3,750. After April 2016 your stamp duty bill for the same property will jump to £12,000. I anticipate the immediate impact of this will be a rush amongst Mid-Somerset buy-to-let investors wanting to complete their purchase before the change takes effect in April.
One school of thought is that there will be downward pressure on property prices in Mid-Somerset as buy-to-let investors will not be willing to pay as much. This may come as good news for those willing and able to buy their first property. However before first time buyers break out the bubbly we may need to consider if house builders or existing homeowners don’t feel they are going to get as much for them, then there is less motivation to build or sell them. The person to thank for this is George Osborne.
Back in 2012, George Osborne chose to utilise the housing market to kick-start the UK economy with subsidies such as Funding for Lending and Help to Buy. However, whilst that helped the re-elect the Tory’s in 2015, some say this impressive growth in the UK property market has been at the expense of pricing out first time buyers.
Others say this announcement is the straw that broke the camel’s back, as over the next four years buy-to-let landlords in Mid-Somerset will slowly lose the ability to offset all their mortgage interest against tax on rental income, after changes announced in the Summer Budget. At the moment, landlords can claim tax relief on buy-to-let mortgage monthly interest repayments at the top level of tax they pay (i.e. 40% or 45%). However, over the next four years this will be reduced slowly to the basic rate of tax – currently 20%.
Is this the end of buy-to-let investment in Mid-Somerset? Possibly – but before we all hit the panic button and run for the hills let me give you another scenario to consider.
Stamp duty rules were changed in December 2014. Before then, buy-to-let landlords in Mid-Somerset were eagerly buying up properties under the old ‘slab style’ stamp duty system.
For example, the stamp duty bill on that £275,000 property was lower under the old slab style duty (pre Dec 2014), at £8,250 yet it isn’t a million miles away from £12,000 stamp duty bill under the soon to be introduced stamp duty regime.
Interestingly though, George Osborne has left a loophole in the new rules, because when it comes to selling up, investors can offset purchase costs against any Capital Gains Tax liability including stamp duty.
I believe that total returns from buy-to-let investment in Mid-Somerset will continue to outpace other investments such as the stock market, gilts, bonds and even pensions.
Also, the best part about investing in property is that it is bricks and mortar.
You can touch it, you can feel it, and it isn’t controlled by some stockbroker in Canary Wharf. The British love property and understand the benefits of investing in bricks and mortar.
Buy-to-let has enough impetus behind it that prospective buy-to-let investors in Mid-Somerset will continue to buy even with a larger stamp duty bill.
More than ever Mid-Somerset buy-to-let investors will need to be careful with what properties they buy, to ensure the extra stamp duty costs are mitigated.
Buying buy-to-let property is a long-term venture. In the past, it didn’t matter what property you bought in Mid-Somerset, or at what price – you would always make money.
With recent changes in legislation and forthcoming changes in taxation the idea that any property will make you money has been blown out of the water.
You wouldn’t dream of investing in the stock market without doing some research or getting expert advice so make sure you do the same before investing in buy-to-let in Mid-Somerset.
About Tom Morgan
Founder of Jungle Property the multi award-winning letting agent based in Glastonbury, Somerset. I am passionate about property and Glastonbury and about providing the very best advice to anyone who wants the best return on a buy-to-let property investment. For an open and brutally honest opinion on anything in the Glastonbury property market please contact me via tom.morgan@jungleproperty.co.uk
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