Is now a good time to invest in buy to let?
Chancellor Rishi Sunak announced a temporary stamp duty holiday in last week’s summer statement.
The announcement has been welcomed by many, as homebuyers are set to save thousands in Stamp Duty Land Tax.
The tax has been suspended on all residential purchases up to £500,000 until March 2021. You can read the full details in Jennifer Smith’s article here.
UPDATE: News was leaked on 23rd Feb 2021 that the chancellor was considering extending the holiday. Read about the news here.
Buy to let properties and stamp duty holiday
The announcement, however, was criticized by Labour last week. The opposition accused the policy of “helping people to invest in buy to let properties”.
So, is this true, and if so, how is the stamp duty holiday helping?
Does the SDLT holiday apply to buy to let?
As the SDLT holiday applies to purchases of all residential properties up to £500,000, it does mean that property investors in the buy to let market stand to benefit.
We have seen a surge in enquiries and instructions for buy to let property since the announcement, and you can understand why.
How much will property investors save with the SDLT holiday?
A property investor buying a £500,000 house stands to save £15,000 in SDLT as a result of the chancellor’s announcement.
Desirable areas in Bournemouth, Poole and Christchurch and the New Forest are prime locations for buy to let properties.
Buy to let properties for Airbnb
At Frettens, we have also seen an increase in purchases of buy to let properties for use as Airbnb rentals. Anna Curtis wrote an article about the issues around Airbnb that you can read here.
Buy to let for student accommodation in Bournemouth
In the past decade, the increasing size of the university has driven a large increase in BTL transactions. This trend shows no immediate signs of slowing.
Is the government planning a capital gains tax increase?
Rumours emerged this week about government plans for an increase in capital gains tax.
These started after the announcement that the treasury announced a study seeking “views about capital gains tax”, to be conducted by the Tax Simplification Office.
Rishi Sunak said of the review:
“It’s a reasonably business as usual practice for the Treasury to ask the Tax Simplification Office to examine various parts of our tax system to make sure they’re up to date.
It happens every year, so the last year or two the Tax Simplification Office looked at inheritance tax, before that they looked at capital relief, before that they’ve looked at VAT, they’ve looked at stamp duty and before that income tax and national insurance.
So, I think, actually, that capital gains tax is the only one they haven’t looked at if you look at everything they’ve done over the last few years.”
How will a capital gains tax increase affect BTL landlords?
Capital Gains Tax is currently charged at a rate of 28% (for higher-rate taxpayers) or 18% (basic-rate taxpayers) on any growth in value that a property has enjoyed.
Even with the various ways of offsetting this tax (e.g. the tax free allowance (currently £12,300.00 per person per annum), legal fees for the purchase or SDLT on the purchase) this is still a fair chunk out of any profits you make selling your buy to let.
Any increase, even small, will be difficult for landlords. Those who need to sell their properties in the short term in order to deal with a downturn in the economy, or who would simply like to retire from being a landlord and take cash from their portfolio, will be hit hard at a time when they least need it.
On a brighter note - if any increases are predicted or announced then we may see an increase in buy to lets coming onto the market which in turn may lead to some reasonable investments for new investors.
So, is it a good time to invest in buy to let property?
Kym Gaisford, solicitor in our residential property team in Christchurch:
“As a lawyer, it is not my place to give financial or investment advice.
We have seen an increase in enquiries and instructions for conveyancing on buy to let properties since the chancellor’s announcement.
The local property market is moving quickly, having halted during lockdown. Whether this is driven by pent-up-demand, changes in lifestyle (with more people working from home), or the stamp duty holiday remains to be seen.
We are facing a turbulent few months ahead, as the economy continues to try to rebuild after the lockdown. We will watch with interest as the property market responds, and will continue to update clients and followers with any new developments.”