Since April 2013 we have seen a tax war of attrition against owners of UK-situated properties both commercial and residential. Whether the property is owned outright or through a limited company by UK resident or non-resident individuals these changes will affect how much tax is paid and when.
A number of the measures introduced are now law, some are transitioning into law and some are proposed to be law by 2020. The Budget 2018 alone introduced seven separate proposed measures which could affect property owners. Therefore by 2020 the tax landscape will have changed significantly from 2013 with very little of it being for the better.
The stated objective of the tax changes is to free up properties for first-time buyers by cooling the property market. We are told that since 2016, 120,000 landlords have permanently left the buy to let sector and this is likely to be a continuing trend up to 2020 and beyond. What is less clear is who is buying these properties. A recent report has shown that although prices may be cooling, sizeable gains are still being made on exit. As such the market is still attractive to the right investors with the right financial structure. We may have fewer landlords in the market, but do we have fewer rented properties?
Until more houses can be built to satisfy demand there will still be a shortage of housing stock. Although government-backed incentives make those houses being built more affordable they can still be out of reach of some first-time buyers. As such they will continue to require good-quality rented accommodation for some time to come. With those rented properties potentially being in the hands of fewer owners which could lead to rent rises.
Therefore, an unintended consequence of the tax changes could well be rent increases for the section of the population these tax increases were meant to help. The prospect of increased rents and some capital growth may well encourage those landlords yet to exit to reconsider their strategy. They cannot however ignore the potential further increased tax on their profit be it annual or capital. There may well be a window of opportunity to restructure their affairs to minimise the effects, but time is running out. We cover some of the tax changes in our Private Client Compass.