1. Stamp Duty
The Chancellor stuck to his guns on implementing a 3% Stamp Duty surcharge on the purchase of additional properties – the loading will come into effect from 1 April as planned.
Prior to the budget there was hope from the industry that the 3% announced in the Autumn statement would either be revised or delayed but that wasn’t to be.
Based on the £290,902 current average value of a UK home, the new 3% loading will see prospective landlords and second homeowners see their Stamp Duty bill soar from £4,545 to £13,272.
The Chancellor confirmed in his Budget that larger residential property investors will be liable for the 3% surcharge; in the Government’s initial consultation, investors ‘bulk buying’ 15 or more residential homes had been earmarked for exemption.
“This levels the playing field for everyone buying investment residential properties, but also means investors have to look harder for the gems. Understanding the triggers for price rise and doing the right due diligence is key. Even the “bulk buyers” will be looking more meticulously for the best investment opportunities.” said Shane Hindocha of property investment specialists InvestInBuyToLet.com
Stamp Duty on commercial properties however has been revised positively. The portion of any transaction worth up to £150,000 will incur no stamp duty under the new system, while the amount from £150,000 to £250,000 will be subject to a 2 per cent tax rate and that above £250,000 to a 5 per cent rate.
This amounts to a 1 percentage point increase on the current top rate of tax, which stands at 4 per cent.
The overhaul transforms the tax into a “slice” system, in which stamp duty is payable on the portion of each transaction that falls within the relevant price band, from the former “slab” set-up, in which different rates applied to the entire transaction. This echoes reforms made to the residential stamp duty system in 2014.
2. Capital Gains Tax reductions
The Chancellor slashed the rate of Capital Gains Tax from 28% to 20% for higher-rate taxpayers, and 18% to 10% for basic-rate taxpayers. But buy-to-let investors won’t benefit, as the reduced rate will not apply to residential property.
“There is now a clear distinction being drawn between residential and commercial property transactions and the Stamp Duty and CGT payable on them reflect that. We get it. It’s fair game to speculate and trade in commercial properties but give first time buyers a chance with residential.” stated Selvan Saha of InvestInBuyToLet.com.
3. Company structure option
Small businesses are the clear winners from the Budget with big businesses picking up the bill – and then some. The biggest beef for small businesses are rates, which far exceed the amount they pay in corporation tax, and there were hopes they would be reduced.
Mr Osborne has obliged, announcing 630,000 small businesses will pay no business rates at all from next year. He claims the reduction will save £7bn per year for businesses. The bill for that will fall to big corporations.
“The net outcome of these changes will definitely encourage property buyers to buy their properties through corporate structures, It’s becoming increasingly tax efficient and lenders too are more open to lending to companies” stated Shane Hindocha.
Invest In Buy To Let have recently started offering their investors a free company setup service for property investment. “A lot of our clients want to buy property for long term growth and for the rental income to supplement or replace their income. Additionally they want a tax efficient way of doing this and then passing on the assets to their loved ones. If you set up a property investment company and borrow money to finance the purchase, the cost of financing is tax deductible so this bypasses the taxes being applied to landlords. Additionally there will be a reduction in corporation tax to 17% from April 2020 – to me this is the Chancellor giving us an escape route to still invest in property but through a structure where politically he can claim that under his stewardship he has created x amount of new companies and grew the SME sector.” said Selvan Saha of InvestInBuyToLet.com