Buy-to-let landlords have been denied a tax break on their property profits as the Chancellor excluded them from a big capital gains tax cut.
Drawing the battle lines in the property market, George Osborne announced in the Budget that he is significantly cutting the rate of tax paid on capital gains – but not for investors who are selling property – at the same time as he confirmed a stamp duty hike for second homes but gifted homebuyers extra help.
Landlords will continue to be stung with a hefty 28 per cent capital gains tax bill when they sell up.In the Chancellor’s own words, the rate is one of the ‘highest in the developed world’.
George Osborne announced he would not extend the cut in capital gains tax to the sale of buy-to-let properties.
Residential property was deliberately excluded from the tax cut that will see investors in other types of asset benefit from the higher rate of capital gains tax being reduced from 28 per cent to 20 per cent, while the basic rate will be reduced from 18 per cent to 10 per cent.
It had been rumoured before the Budget that part of the Chancellor’s motivation for cutting CGT could be to encourage property investors to sell up, thus releasing more homes onto the market and helping homebuyers struggling with high prices.
Such a move would have chimed with his stamp duty hike on buy-to-let and second homes that will see an extra 3 per cent surcharge added – confirmed in today’s Budget.
But industry experts said the decision could be ‘prudent’ as extending the tax break that will arrive on April 6 to property investors could have sent house prices tumbling as it would have made it cheaper for landlords to sell up and flood the market with properties for sale.
Experts said the Chancellor’s decision is aimed at trying to avoid a collapse in property prices.
Many landlords are keen to sell up following previous tax changes announced by the Chancellor that mean their investments are no longer financially viable.
Landlords are being hit by a reduction in the amount of mortgage interest tax relief they can claim – which will move down from being able to offset interest against tax and their own tax rate to being capped at 20 per cent.
Jeremy Leaf, a former RICS chairman and north London estate agent, said: ‘In denying landlords a reduction in CGT on property sales, the Chancellor is trying to avoid a collapse in property prices.
‘There are probably enough landlords already thinking of selling up because of previous policies, and if the CGT reduction had been extended to landlords it would have encouraged even more accidental landlords to sell.’
It will annoy landlords who will feel victimised
He continued: ‘This could have helped first-time buyers as more property comes onto the market but the rush to sell could also have contributed to a collapse in house prices.
‘One can understand the Chancellor’s prudence and it could turn out to be a shrewd move but it will annoy landlords who will feel victimised.’
Brokers and estate agents went on to suggest that the move will ultimately hurt first-time buyers through higher house prices, in addition to tenants as landlords try to recoup their losses.
Stuart Gregory, of mortgage brokers Lentune Mortgage Consultancy, agreed that extending the tax cut to buy-to-let properties would have been an incentive for more investors to sell.
‘And it would have increased the supply of properties on the market,’ he said.
Lucian Cook, head of residential research at estate agents Savills, said: ‘Keeping the old rates of capital gains tax on residential property may put further pressure on the supply of private rented homes against the backdrop of rising demand. That may well put upward pressure on rents.’
Richard Lambert, of the National landlords Association, said: ‘The steady upward ratchet of taxation on landlords over the past year shows that George Osborne is determined to bear down on the private rented sector, but he still depends on the tax revenues he expects to pull in from them.
‘It appears that however much he wants landlords out, he can’t afford to allow them to leave.’
Demonstrating that his allegiances now lie firmly with homebuyers and not property investors, Mr Osborne revealed extra saving help for first-time buyers.
Those looking to buy their first home were also given a boost in the Budget with the announcement of a Lifetime Isa.
You’re going to need a Lifetime Isa so you can afford house prices when you buy your first home when you’re 50.
It will enable first-time buyers under 40 years old to save up to £4,000 a year tax-free into it to get a maximum £1,000 bonus, with a £1 top-up for every £4 that they save.
The savings and bonus can be used towards a deposit on a first home worth up to £450,000. Alternatively, it can be kept to age 60 and used as a retirement pot, when the withdrawals includuing the bonus and gains will be tax-free.
Adrian Anderson, director of mortgage brokers Anderson Harris, said: ‘The lifetime Isa should encourage saving but if property prices keep rising at the same rate as they have been, it is still going to be incredibly difficult for first-time buyers to get onto the housing ladder.
‘The £450,000 limit on any property purchase will exclude many homes in London and the south-east, and unless this limit rises on a fairly reasonable basis, it will be of limited use to those buying in more expensive areas. The problem of supply remains an issue and unless more homes become available, property prices won’t be kept in check.’
Property buyer Henry Pryor said: ‘You’re going to need a Lifetime Isa so you can afford house prices when you buy your first home when you’re 50.’