Real Estate

‘Accidental landlords’ lose out in the Budget


Reforms to lettings relief announced in the Budget will hit “accidental landlords” who have decided to rent out their home after failing to sell in a slowing market, property market experts said.

Philip Hammond, the chancellor, unveiled a series of proposed changes to property taxation in Monday’s Budget, with tweaks to the stamp duty land tax regime as well as a consultation on lettings relief.

Landlords who at some point lived in the property they rent out currently gain relief from capital gains tax when they sell it. The size of the relief is based on the period of time the landlord occupied the property, with an additional exemption given for the final 18 months of ownership.

From April 2020, however, the relief will only apply where the owner is sharing occupancy of the home with the tenant — and the final period exemption will be reduced to nine months. The chancellor said the changes will be put out to consultation.

Nimesh Shah, partner at accountants Blick Rothenberg, said: “This is effectively abolishing lettings relief through the back door.”

Aneisha Beveridge, head of research at estate agent Hamptons International, said the move would particularly affect so-called “accidental landlords”, who had chosen to rent out their property after being unable to sell it — a phenomenon that picks up when market activity slows.

According to Hamptons research, 12.5 per cent of homes arriving on the rental market in London in 2017 had previously been listed for sale — the highest proportion of any region and the highest figure since 2007.

Ms Beveridge said a slowdown in property sales in London and the Southeast had accelerated in recent years, exacerbated by a reluctance among buyers to commit to a big property purchase amid Brexit-related uncertainty.

“While most landlords are in the business by choice, the last three years have seen an increase in the numbers letting out a property they had previously tried to sell. With mortgage rates remaining low, these discretional sellers can afford to let their home, while they wait and see what the future holds for the sales market.”

Foreign buyers of homes had better than expected news from Mr Hammond on proposals for a new stamp duty surcharge on non-resident buyers, which he said would be put out for consultation. The proposal would see overseas buyers in England and Northern Ireland pay a surcharge of 1 percentage point. But this is at the lowest end of the 1-3 per cent range originally floated by Theresa May, prime minister, when she unveiled the proposal at the Conservative party conference.

Ms Beveridge said most foreign buyers would take such a surcharge in their stride. “I don’t think a stamp duty surcharge on foreign ownership, particularly at the top end in London, will have that much of an impact. Most of the time such buyers have the money to spend. But it’s more likely to hit smaller investors.”

Mr Hammond also delivered good news for first-time buyers of shared ownership properties, who missed out last year from his exemption on stamp duty for most first-time buyers. Those buying a home worth up to £500,000 through the shared ownership scheme will now qualify for the relief. The exemption will be retrospectively available to those who have bought a property since the last Budget in November 2017.

Kevin Roberts, director at Legal & General Mortgage Club, welcomed the news: “The government clearly recognises the benefits of shared ownership as a genuine option for individuals, couples and families who want to become homeowners. Hopefully, this exemption will now bring about even more awareness of the scheme and make it as widely recognised as other high-profile tenures such as Help to Buy.”

Others pointed to the relatively small impact of the move. Daniel Hegarty, chief executive of digital mortgage broker Habito, noted the Office for Budget Responsibility had put the cost of the chancellor’s relief for shared ownership at only £5m. “This new policy is not that transformative,” he said.



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