Stamp duty holiday boosts buy-to-let landlords

Buy-to-let investors were handed a surprise boost in the chancellor’s summer statement as tax savings from the stamp duty holiday will also apply to landlords who expand their property portfolios or incorporate as a lettings business.

The chancellor, Rishi Sunak, aimed to revive confidence in the post-lockdown property market by lifting the threshold at which stamp duty kicks in from £125,000 to £500,000 in England and Northern Ireland. The new threshold took effect on Wednesday and will run until the end of March 2021. 

Although property investors and second homeowners must continue to pay a 3 per cent stamp duty surcharge on purchases, they will pay no further duty on the first £500,000 of the property’s value. 

For an investor buying a £500,000 property, this would halve the rate of duty payable from £30,000 to £15,000.

Steve Olejnik, managing director of mortgage broker Mortgages for Business, said it was “great news” for landlord investors, and was also likely to lead to a rise in individual buy-to-let landlords transferring their properties to a limited company structure to take advantage of tax relief on mortgage interest, since a transfer would normally incur a stamp duty charge. 

“Those looking to move personal property into a company name because of better tax treatment may have been reluctant to do so because of the stamp duty implications,” he said. “Clearly that cost is lowered now.” 

First-time buyers, who were previously exempt from paying stamp duty up to £300,000, will lose their special status during the holiday, paying the same rates as ‘next time buyers’ and those who are downsizing.

Overall, the Treasury estimated that the changes meant nine out of 10 purchasers would pay no stamp duty, with an average saving of £4,500.

Neal Hudson, director at market research company Residential Analysts, said the move marked a substantial reversal in housing policy.

“The previous focus on first-time buyers and home ownership has been set aside and the priority now appears to be supporting transactions, irrespective of who is buying,” he said.

Extending the stamp duty holiday to landlords was a surprise, as investors have been hit by higher taxes and tighter restrictions on borrowing in recent years. 

Aneisha Beveridge, research director at estate agent Hamptons, said the average stamp duty bill for an investor would fall by £1,840, or 22 per cent, in England. But the gains were greater in London, where one in five landlords spend more than £500,000. There, the average stamp duty bill for an investor will fall by £7,240, or 26 per cent, she said.

A stamp duty holiday is designed to boost the market in several ways. Buyers are in a better position to qualify for a mortgage as reduced stamp tax allows them to wield a larger deposit. Sellers are more likely to come to the market during the time-limited period when they believe buyers have more money to spend, improving the stock of housing available to buy. The measure may also help those looking to remortgage if it succeeds in boosting demand, underpinning property valuations. 

In a nervous market in which buyers are worried about the economy ahead of the closure of furlough schemes in the autumn, the stamp duty holiday may also stiffen the resolve of sellers who had felt pressure to offer price discounts.

Marc Selby, chair of the property taxes committee at the Chartered Institute of Taxation, said: “This cut should help to revive the housing market, but the jury is out on whether it will mostly benefit buyers or sellers. In practice, it may simply stabilise prices.”

The benefits will be concentrated on areas of higher average house prices, such as London, the south east and south west. Estate agent Savills identified the local authority areas which will see the biggest falls in stamp duty receipts, based on previous sales figures, top of the list being Wandsworth (with a fall of £40m), Bromley (£35m) and Wiltshire (£29m). According to Rightmove, the property website, the average saving in the north east will be £646, versus £15,000 in London. 

While the quadrupling of the threshold at which duty applies is likely to boost activity at a time of economic uncertainty, some experts expressed concern about the effect of the March 2021 deadline. Helen Miller, deputy director of the Institute for Fiscal Studies, said: “If the economy is still not recovered and if people have bought forward transactions, this could lead to a depression of housing sales while the economy is still weak.”

The policy change may have come as a surprise to those currently going through the homebuying process, but lawyers were confident that buyers in England and Northern Ireland who had exchanged contracts would still benefit, since stamp duty is only payable on completion of a purchase. Transactions that completed on 8 July would also be eligible for the discount.

Green homes grant

The chancellor also promised that from September, homeowners and landlords upgrading the energy efficiency of their homes would be able to apply for vouchers to cover at least two-thirds of the costs of improving their properties up to a maximum of £5,000.

For low income households, the amount could stretch to the entire cost, up to a maximum of £10,000, as part of a £2bn “green homes grant”.

Although full details of the scheme have yet to be published, homeowners will be able to apply for the vouchers online via a website listing all the options for renovating their homes. The projects that money can be spent on include things like loft insulation, eco-friendly boilers, double or triple-glazing and installing energy efficient lighting.

The chancellor said he expected households who carried out improvement works could save up to £300 per year on their energy bills.

Homeowners and those who work in the property industry welcomed the measures. David Cox, chief executive of Arla Propertymark, said: “Since the withdrawal of the landlord’s energy saving allowance, we’ve been calling for a simple grant scheme to help private homeowners and landlords make their properties more energy efficient.”

Hospitality help

However, the most eye-catching money saving measure was the “eat out to help out” scheme.

From Monday to Wednesday throughout August, a 50 per cent discount on food and non-alcoholic drinks to a maximum value of £10 per person (including children) will be available at restaurants, pubs and cafés who sign up to a new government website, to be launched next week. Businesses put in a weekly claim, and the government will reimburse the discounts to their bank accounts within five days.

The chancellor also announced a temporary cut in value added tax from 20 per cent to 5 per cent to boost the UK’s hospitality and tourism industries. This will cover accommodation and eat-in food, pubs, restaurants, cafés and visitor attractions — but it is up to individual businesses if they want to pass this on to their customers.

HMRC will publish full details of what transactions will benefit from lower VAT rates in coming days, with the new rate applied from next Wednesday until January 12.

The VAT cuts could have limited impact on lowering prices for consumers, and should be seen as a way to support hospitality businesses’ margins, said Sunil Parmar, VAT director at Smith & Williamson.

“A coffee priced at £3.80 before today’s cut should see a 47 pence reduction being passed to the customer [but the] business may choose to maintain that original price to try to recoup any loss of earnings since the pandemic, or simply to save time and expense of changing internal pricings and point-of-sale systems,” he said.

Pensions puzzler

Some commentators were surprised that the chancellor did not announce any changes to the ‘triple lock’ which guarantees the state pension will rise each year by the higher of inflation, average earnings or 2.5 per cent.

Jon Greer, head of retirement policy with Quilter, a firm of independent financial advisers, said this was “despite concerns that abnormal wage volatility next year once the furlough scheme ends will provide a considerable boost to the level of the state pension”.

He now expects the chancellor to “temporarily amend the triple lock” in the autumn Budget. Other pensions experts fear the chancellor could consider measures that penalise higher earners, such as ending higher rate pensions tax relief.

“All eyes now turn to the autumn budget [as] the chancellor signalled this is when he hopes to begin balancing the books,” said Alistair McQueen, head of savings and retirement at Aviva. “As to how he should move, it’s premature to say — not even the chancellor knows where the economy, or coronavirus, will be in four months.”


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