In his Statement on 8 July, the Chancellor temporarily raised the starting point for stamp duty land tax (SDLT). In England and Northern Ireland, the raise is from £125,000 to £500,000 and is valid until 31 March 2021. Next, the Scottish government changed the nil rate band of its Land and Buildings Transaction Tax (LBTT), increasing it from £145,000 to £250,000. Wales 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, 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. 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.
Other buy-to-let taxes remain unchanged
The other tax changes which have been made to buy-to-let over recent years haven’t changed, meaning that:
- any personal mortgage borrowing cannot be offset against rent received. Instead, it 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%. The tax must be paid within 30 days of completion.
It has been suggested that these changes have 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 for some, but any such transfer could result in one of the 30-day capital gains tax bills.
If these 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.
The value of your investment can go down as well as up. You may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
The value of tax reliefs depends on your individual circumstances. Tax laws can change.