Property investors desperate for good news in this week’s Budget

In recent years, residential property landlords have suffered a series of major tax changes that have had a detrimental impact on their business.

Stamp Duty Land Tax (SDLT)

Back in April 2016, a 3% SDLT surcharge was introduced on the purchase of buy-to-lets and second homes. Many feared this would lead to an increase in rents as landlords looked to offset their SDLT bill by raising their charges, while the supply of homes to buy could fall as investors who fund new developments are put off by the tax hike.


Since the changes took effect, some commentators have suggested they have led to a steep decline in property sales, costing the economy nearly £1 billion because of a reduction in the number of people selling homes and a flow-on reduction in demand for services such as removals or renovations.

Also in April 2016, the 10% Wear & Tear allowance was abolished, leaving landlords of furnished accommodation no longer able to claim tax relief for annual depreciation of furnishings etc. Instead, they can only claim tax relief for the cost of replacing any furniture, furnishings, appliances and kitchenware, but not the initial cost.

Mortgage interest relief tax restriction

More recently, April 2017 saw the restriction of tax relief on finance costs for residential landlords:

  • From 6th April 2017, tax relief on mortgage interest (and other finance costs) will be restricted to basic rate (20%) tax relief
  • The changes are being tapered in over a four-year period, between April 2017 and April 2020
  • The new rules affect individuals, not companies. They also apply to residential property, not to commercial property or Furnished Holiday Lettings

Property investors are strongly advised to review the impact of these changes, and look to arrange their property affairs to minimise the impact of these changes.

Another cause for concern was this month’s Bank of England interest rate increase from 0.25% to 0.5% – the first increase since July 2007. It is widely expected that there may be at least two more increases over the next three years.

Budget hopes

With the Conservative party still reeling from June’s General Election, and bruising Brexit negotiations ongoing, the UK economy remains fragile. Philip Hammond’s Budget on Wednesday is one of the most eagerly anticipated for some time.

Property sector experts continue to call on the government to change its stance on Stamp Duty, a demand they have been making since the 3% SDLT hike was first introduced – it remains understandably very unpopular within the property sector.

Many commentators hope the chancellor will acknowledge that the additional 3% SDLT charge is having a detrimental effect on property investors, demonstrated by a drop in buy-to-let purchases. Some have called for the SDLT liability to be shifted from the buyer to the seller, claiming this would help first-time buyers get on the ladder, while also lessening the burden of those upsizing to larger homes.

The Residential Landlords Association (RLA) is amongst those opposed to the recent restrictions to mortgage interest tax relief and, ahead of the Budget, has been urging landlords to lobby their local MPs to reverse these changes. The RLA claims the changes pose a real risk to tenants, as landlords cannot afford the extra tax costs and may have no choice but to sell their property. They are calling on the government at this late stage to impose the restrictions only on new borrowings.

Despite the strong opposition to both the SDLT increases and mortgage interest relief changes, most do not expect any real movement from Mr Hammond on these issues. It remains to be seen what, if anything, the chancellor may do to relieve some of the pressure within the property sector. But, given how much he has on his plate with the wider economy, many expect he may introduce measures more concerned with housebuilders and providing housing to first-time buyers than to provide any real assistance for landlords.

We shall of course see when he shows his hand on Wednesday…

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