Moves to Discourage the Private Rented Sector

In his last years as Chancellor, George Osborne appeared to have embarked on a campaign to encourage home ownership and discourage the purchase of ‘buy to let’ residential property.

The March 2015 Budget introduced the ‘help to buy’ ISA, building on other features of the existing help to buy scheme. At the same time it announced that the landlord’s energy saving allowance would not be extended beyond April 2015.

In the Summer 2015 Budget, measures were announced to limit the deduction available for interest paid by individual landlords, restricting relief to the basic rate of tax on a phased basis, beginning in April 2017 and reaching full implementation from April 2020.

The 2015 Autumn statement announced a supplementary 3% stamp duty land tax charge on purchases of buy-to-let residential property and second homes. Subsequently, the March 2016 Budget introduced a lower rate of capital gains tax for gains on long-term investment in new shares in unlisted trading companies, moving the balance of advantage towards entrepreneurial investment rather than investment in property.

The impact of these changes is very uncertain. It is easy to say who pays tax, but the question of who bears the burden of it is much less easy to answer. In a buoyant rental market, such as London, increasing costs (or reducing reliefs) for private landlords may simply lead to increased rental costs for tenants, thus delaying even further the day when they may have sufficient funds saved to put a deposit on the purchase of a house.

To the extent that the burden falls on landlords, it may encourage them to sell their properties, and deter new buy-to-let purchasers. This may increase the stock of properties for sale to owner occupiers, and perhaps reduce prices somewhat. On the other hand, lack of supply of properties to let may increase rent levels.

The most significant point is that the shifting of properties between the rental and the owner-occupied sectors will do nothing to alter the fact that demand for homes outstrips supply. However, many tenants become owner occupiers, this does nothing to reduce the number of people who do not have a home at all, or live with parents.

The only solution to the housing crisis seems to be to build more homes!

To discuss, please contact Steve Wheeler, Private Client Tax Partner at Moore Stephens (steve.wheeler@moorestephens.com).