Could Buy to Let Market be Boosted by Tax Cuts

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May 23rd 2022
Tax Week 7
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Could Buy to Let Market be Boosted by Tax Cuts

The Chancellor hopes to simplify taxes, and there may be possible tax cuts to lift a weakened economy after October. Could we see changes to the rental property market?

Only 14 percent of current landlords are looking to buy new property in the next twelve months, according to research by a consumer insight consultancy, BVA BDRC.

Changes to the taxation of buy to let property since 2016 caused a slump in the buy to let market. Those who remained looked for alternative methods in which to wrap their investments.

We produced a buy to let tax calculator to show the impact of the changes to buy to let which included surcharges to stamp duty as well as the limiting of tax relief on mortgage interest payments.

The removal of mortgage interest as an allowable tax relief against rented property was phased in from April 2017 and is being reduced over a four year scale. From 2021 landlords are currently scheduled to be capped to basic rate relief on interest costs.

Purchasing property via Limited Companies was the workaround and it appears to be the route the majority of landlords are taking at the moment.

Over half of landlords are buying property to rent though a Limited Company, and the proportion using Limited Companies is increasing even though the actual purchases for rental are falling.

Research by a mortgage intermediary, Foundation Home Loans, shows the tax factors to be the main issue causing the property rental market to stall.

Many amateur landlords or those will one or two properties, sold up and left the market once tax changes were announced with those with four or more properties looking to shift, or shifting, their portfolios into an incorporated business.

If the economy does hit a downward trajectory and property values begin to slide, it is possible the Chancellor, Sajid Javid, could switch his predecessor's stance and remove the disincentives of joining rental market.

Javid has already stated an intention to shift stamp duty on to the seller rather than buyer.

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