Budget 2016: no stamp duty exemptions for larger investors or limited companies
The government has chosen not to exempt any borrowers from the stamp duty surcharge due to take effect on 1 April.
Neither large-scale nor corporate investors will be able to avoid the 3% levy on additional property purchases. This also means that landlords who transfer to a limited company on or after 1 April will pay the higher rate.
More pain as residential property exempt from capital gains tax cuts
The chancellor also announced that the headline rate of capital gains tax (CGT) will fall from 28% to 20%. The rate for basic rate taxpayers will fall from 18% to 10%. These changes will take effect on 6 April 2016, the beginning of the 2016–17 tax year, and apply to disposals after this date.
But these new rates will not apply to carried interest or to chargeable gains on residential property. Or rather, an 8% surcharge will apply to carried interest and residential gains, meaning that buy-to-let landlords will continue to pay the higher rates.
Private Residence Relief will still apply, meaning that individuals will not pay CGT on the sale of their main home.
If you have concerns or questions on tax, seek professional advice.
New stamp duty regime for commercial properties
The government will also introduce a new progressive system of stamp duty land tax (SDLT) for non-residential property transactions.
Currently, a ‘slab’ system applies for commercial property purchases. Under this system, one tax rate is payable on the full value of the transaction.
The government abolished the slab system for residential properties in December 2014. This resulted in reduced SDLT bills for all purchases worth £937,500 or less. The government anticipates that implementing a progressive system for non-residential transactions will lower bills for 90% of purchasers.
Expert view: Budget will do further damage to the rental sector
“It isn’t uncommon for the government to give with one hand and take with the other. This Budget lowered capital gains tax rates and refined stamp duty for commercial property investors. But it also removed the possibility of any exemption from the stamp duty surcharge, and kept CGT level for buy-to-let disposals.
“The chancellor has made his position clear, and no-one expected him to abandon fully his attack on landlords. But after countless warnings from industry bodies and even the threat of legal action, he could have used this opportunity to reign it in. He might have made loans taken out prior to April 2017 exempt from the withdrawal of tax relief on mortgage interest. He might have implemented an exemption to the stamp duty surcharge. He might have lowered CGT for all property, thereby not discouraging investment in rental property even further than he already has.
“Despite the chancellor’s obvious pride in his home-ownership initiatives, this attack on landlords will come at a cost. There will always be a need for rented homes, one that local authorities and private developers alone cannot meet.
“The problems facing the buy-to-let sector are not insurmountable. Rental property can still be a profitable and rewarding investment. But the chancellor needs to remember the vital role that the buy-to-let sector has played in housing millions of tenants over the years. And he needs to think long and hard about whether political expedience is worth choking the supply of homes and forcing up rents.”
- Andrew Turner, Chief Executive of Commercial Trust
Other property and investment highlights
Stronger domestic outlook tempered by EU uncertainty
The chancellor began his speech with ominous talk of the threat that global financial turmoil poses to the UK. More countries are loosening monetary policy and even adopting negative interest rates. Mr Osborne spoke of a growing risk of economic derailment and admitted that the Office for Budget Responsibility (OBR) has revised downwards its economic growth forecasts for the next five years.
Even so, the OBR expects UK GDP growth to outstrip that of any other major advanced economy. The chancellor took this opportunity to put forward his case for continued EU membership, telling MPs that the OBR’s optimistic projection was predicated on the UK remaining part of Union.
“The OBR forecasts that inflation will remain below its 2% target in 2016 and return to target by 2018. The slack in the economy means that interest rates may continue to remain low in the short to medium term, but long term inflationary pressures will eventually force the Bank of England’s hand.”
- Andrew Turner
Limits to tax relief for large multinational enterprises (MNEs)
The government will follow the OECD’s recommendations relating to tax avoidance by multinational companies. Specifically, it will limit the tax relief that MNEs may claim on finance costs.
Some industry commentators feared that this measure could catch corporate landlords who had set up limited companies specifically to avoid similar restrictions imposed on landlords last year. But a £2 million threshold will mean that the rules will only apply to companies whose net UK interest expense exceeds this amount.
Thus, corporate landlords should be able to continue to claim their tax relief in full.
This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.