The Chancellor’s Summer Statement introduced temporary changes in stamp duty land tax on homes, which prompted similar – but not identical – changes in Scotland and Wales.
In his Statement on 8 July, the Chancellor raised the starting point for stamp duty land tax (SDLT) in England and Northern Ireland from £125,000 to £500,000 until 31 March 2021. Shortly afterwards, the Scottish government made a change to the nil rate band of its Land and Buildings Transaction Tax (LBTT), increasing it from £145,000 to £250,000. Last of the line was Wales, which adopted a slightly different tack, raising the nil rate band on land transaction tax (LTT) from £180,000 to £250,000, but only for main home purchases, but not for second homes or buy-to-let investments.
Outside of Wales the tax cuts prompted several news stories about a boost to the buy-to-let market. There is no arguing that the costs of buying an investment property have dropped – by up to £15,000 in England and Northern Ireland. However, the extra 3% SDLT surcharge on the full price will continue in England and Northern Ireland, as will the corresponding 4% LBTT levy in Scotland.
The other tax changes which have been made to buy-to-let over recent years remain unaltered, meaning that:
any personal mortgage borrowing cannot be offset against rent received but instead qualifies for a 20% tax credit; and
any capital gains on sales not covered by the annual exemption are subject to rates of up to 28% and the tax must be paid within 30 days of completion.
In the English context it is also worth remembering that there is still an unfinished consultation on ‘modernising the rental sector’, including the possibility of removing the availability of assured shorthold tenancies (ASTs).
Another upshot of the tax changes was the suggestion that they had given buy-to-let investors, who directly own their property, a chance to move the property into a company, at a reduced cost, to increase tax-efficiency. This may be true in some instances, but any such transfer could result in one of the 30-day capital gains tax bills.
Buy-to-let investment has been on the government’s hit list since 2016. If the stamp duty and land tax cuts tempt you to think about investing in this sector, make sure you take advice and understand all of the tax consequences before doing so.