Whilst the new Stamp Duty relief scheme stole the headlines, quietly in the budget small print was the news that those who invest in property using a Special Purpose Vehicle (SPV) will, as of next year, pay an increase in Capital Gains Tax when they sell the property, due to a freeze on indexation allowance.
Prior to this latest move, using an SPV as a way of holding investment property meant that a lower amount of tax was payable when such a property was sold.
It’s the latest in a line of changes that have increasingly meant that Buy To Let isn’t the straightforward investment that it used to be a few years ago.
We’ve already seen changes in the way that rental income is taxed, which although being phased in over the next two years will mean an increased personal tax bill for Landlords in January who still own properties in their own name, rather than under an SPV.
Buy To Let lending legislation has also changed, with new rules being introduced by the Prudential Regulation Authority in October, making it more complicated to obtain lending to finance the purchase of an investment property.
Those who invest in property using a SVP will pay more when they sell it
Now, with this latest change in tax meaning that landlords will not only pay more tax on their rental income, but also any profit that they make from an increase in the value of a property over the time they own it, it’s easy to understand why many investors might start to question the viability of their portfolios.
The problem is, the demand for quality, privately rented housing remains strong in most areas of the UK, and therefore if more landlords choose to exit the market as a result of increased taxation, whilst this may assist some First Time Buyers to get on the property ladder – which it would appear is what the Government intended as an outcome when changes were announced in 2016 – it may also cause issues elsewhere in the property ecosystem due to a decrease in available rental properties.
If we look at the headline figures, you can see where the issues may lie.
According to the latest data available from the Department for Communities and Local Government, there are currently 23.5million residential dwellings in the UK.
14.7million are owned by their occupiers, either with or without a mortgage.
4.7million are rented privately from landlords, whilst 4million dwellings are provided by social housing.