Buy-to-let investors dealt blow in this year’s Budget.
Landlords have been dealt more bad news in this year’s Budget.
In the Chancellor's plan for the UK’s finances unveiled yesterday, buy-to-let investors were excluded from significant new cuts to Capital Gains Tax.
George Osborne also made clear that all buy-to-let property investors would be expected to pay the additional Stamp Duty rate of 3% announced in the Autumn Statement last year. Previously large investors were to be excluded from the additional charge.
Surcharge on selling
Landlords will now face a Capital Gains Tax (CGT) surcharge compared to other types of investors.
CGT is a tax levied on profit from the sale of assets like a property or shares. Everyone enjoys an annual CGT allowance, which currently stands at £11,100. The basic rate of CGT will be cut from 18% to 10% and the higher rate will be cut from 28% to 20% from April this year.
However, the gains made on residential property sales aren’t eligible for the new lower rates. Instead the Chancellor has maintained the existing rates, equivalent to an 8% surcharge. So those with second homes and buy-to-let investors will pay more.
The Budget document said the move was designed to “ensure that CGT provides an incentive to invest in companies over property”.
The rules will mean a £50,000 gain (above the allowance) made from selling a second home or buy-to-let property will leave a basic rate taxpayer with £41,000 or a higher rate taxpayer with £36,000.
But selling other assets like shares that make a £50,000 gain (above the tax-free allowance) would see basic rate taxpayers get to keep £45,000, while higher rate taxpayers would be left with £40,000 after CGT.
Surcharge on buying
The Chancellor also cleared up exactly who would be affected by the introduction of a 3% Stamp Duty surcharge for second homes and additional properties.
When the surprise levy was announced in last year’s Autumn Statement it was thought that larger investors with more than 15 properties might be exempt from the policy.
However, Osborne confirmed that all investors, even those with a large portfolio considered ‘professional’ landlords, will have to pay more Stamp Duty when they come to buy an investment property.
The 3% rise in Stamp Duty will come into force from 1st April 2016, and means the tax bill on a buy-to-let property costing £250,000 will jump from £2,500 to £8,800.
The Chancellor is expected to raise £1 billion from the changes by 2020.
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