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UK property market: Buy-to-let landlords brace themselves for another tax hike


BUY-to-let investors are bracing themselves for yet another tax attack in next week's Budget, which will further squeeze profits and drive more private landlords out of the market.


Phil Spencer discusses likely changes to property tax

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The popularity of buy-to-let has plunged in the last five years, after the Treasury introduced a 3 percent surcharge on purchases and scrapped higher-rate tax relief on mortgages. Reduced "wear and tear" allowances and more red tape have reduced the appeal, while lockdowns hit city centre rentals as tenants fled to larger properties in the suburbs. At its peak, more than two million took out buy-to-let mortgages to generate income from tenants and capital growth from rising prices.

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However the number of landlords has fallen by 8 percent in the last two years and the exodus looks set to increase, with a further one in five either planning to sell up or already doing so.

Property group Barrows and Forrester said buy-to-let will become even less attractive if Chancellor Rishi Sunak increases capital gains tax (CGT) in next Wednesday’s Budget, as many expect.

Currently, higher or additional rate taxpayers pay 28 percent on gains when selling an investment property, while basic rate taxpayers have to pay 18 percent.

( (Capital at risk. ISA rules apply))

If these rates were hiked in line with income tax, higher or additional rate taxpayers would pay 40 percent and 45 percent CGT respectively, while basic-rate taxpayers would need to pay 20 percent.

Buy-to-let has plunged in the last five years (Image: Getty)

The annual CGT tax-free allowance may also be cut from today's £12,300, possibly to £5,000.

While buy-to-let investors continue to enjoy capital growth, with the average property up £20,113 to £254,525 over the last year, they are likely to lose much of that in tax when they sell.

Barrows and Forrester managing director James Forrester said the stamp duty holiday has driven up buy-to-let values, but added: "True to form, it seems the Government will do its best to spoil the party by increasing CGT."

He said this is "quite astounding" given how recent tax changes have hit landlord numbers, and this will backfire on tenants. "Fewer landlords means fewer properties and even less-affordable rents," he said.

Buy-to-let may still work for some, with the average UK rent rising 4.3 percent to £1,056 over the last year, according to Hamptons.


The tax charges have hit landlord numbers (Image: Getty)

Head of research Aneisha Beveridge said there are 250,000 fewer rental homes than in 2017 but added: "The stamp duty holiday and record-low interest rates on cash have tempted some small and first-time landlords back into buy-to-let."

It is now too late to take advantage of the stamp duty holiday, which will end on March 31, unless the Chancellor extends that next week.

While many private buy-to-let investors are giving up, professionals with larger portfolios are buying property after setting up limited companies to take advantage of more attractive tax treatment.

Last year, the number of new buy-to-let limited companies rose by a quarter to 41,700, Hamptons says.

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