Recent Regulatory And Tax Changes Attributed To Rise In Enquiries

Irwin Mitchell Private Wealth is reporting an increase in the number of landlords with significant property portfolios wishing to downsize, following multiple legal changes that make buy-to-lets a less profitable investment option.

The rise follows a string of crackdowns by the government on buy-to-let landlords, who face growing pressure from the opposition and the public and via the media, against the backdrop of the UK’s housing crisis. In recent months landlords have seen more stringent mortgage lending criteria announced (particularly for those with four or more properties) and an additional 3pc Stamp Duty Land Tax (SDLT) increase where buyers already have a primary residence.

The regulatory and tax reforms have also been followed by a pledge from Jeremy Corbyn at last week’s Labour Party Conference to introduce rent-caps on buy-to-let properties, raising further concerns for landlords. The controversial proposal was met by claims from landlords that rent controls had failed in the past and would only result in a reduction in the quality of rented properties.

However, a report from estate agent Savills released last Monday (2 October) found that the amount of rent paid to private landlords in the UK is now double the amount of mortgage interest paid to banks by homeowners. While homeowners have enjoyed low interest rates, renters have seen average rental prices rise year on year: for London, the average rent rose by 42% in the last five years.

Out of the total amount of £54bn paid over a 12-month period ending in June 2017, £24m was paid by younger people. Clearly the government’s thinking is that the changes in buy-to-let regulations and rules will begin to help younger generations get on the property ladder.

Disposing of buy-to-let portfolios will not be as straightforward as some landlords might think, according to Irwin Mitchell Private Wealth. Those with larger portfolios may find themselves with a Capital Gains Tax (CGT) bill due to a move by HMRC to crack down on landlords who do not declare all sources of income.

Expert Opinion

“It’s understandable that landlords, who have been hit with some difficult changes to swallow, are now thinking of exiting the buy-to-let market in order to invest elsewhere. We’ve certainly seen an increase in enquires from landlords worried about the future market.

“However, the CGT liability that will crystallise on each property sale must be factored in when weighing up whether it is best for landlords to divest of their property portfolio.

“Any restructuring of a portfolio should factor in the overall tax implications and a comparison of the costs of alternative investments, for which legal advice should be taken. It is easy to overreact to the recent negative signals, but existing portfolios can continue to produce good income and capital growth, and in a low-interest environment with significant geo-political uncertainties, many of the attractions of bricks and mortar remain.

“If the government really wants to help young people on to the property ladder, it needs to combine the recent disincentives in the buy-to-let sphere with fulfilling its promises to get more housing built.” Jeremy Raj - Partner