In the last year the taxman has attacked the buy to let investment market, seeing it as a soft target that can be squeezed to raise more taxes. Of course the justification for these increases in the tax burden are wrapped up in a focus on the high earning landlords who have built up a sizable Buy to Let property portfolio. This ignores the fact that the bulk of new entries to the Buy to Let market have been individuals seeking a reasonable return from their savings, at a period of time when the Bank of England has sought to keep interest rates low and therefore returns on savings are equally depressed. A number of these investors are the very people who the old Chancellor urged to take control of their pension funds and to avoid the record low annuity rates which are on offer. Given annuity rates, given interest rates, no wonder many people saw property and Buy to Let property as the only viable option.
Once this investment flow started to grow, then the old Chancellor pounced. So the Chancellor gives freedom to access pension funds with one hand and increases taxes with the other. The claim is that the intent is to drive housing stock back into the market away from the greedy landlords who are holding on to it.
What nonsense.
The need is for more housing stock full stop. The shortages at present are both in the Housing buying and selling market and the property rental market. Driving properties from one to the other just moves the shortage elsewhere. The only solution to shortages in all areas of housing is a surge in house building. Oh for all the houses cleared in the 60s and 70s when governments saw a brave new world of tower blocks and spent tax money clearing what they called slums. ( others called them investment opportunities). More housing stock would drive out excess profits from both markets, reducing margins by the simple application of supply and demand.
Of course the problem is that the plans for house building do not even begin to clear the shortages and in fact still fail to keep up with population growth and therefore demand for housing, either to buy or to rent. Those in power realise it could be 20-30 years before this happens. So they will continue to tinker, and be seen to be doing something while taking as much tax income as possible.
In fact given the continuing depression of interest rates even with the tax changes it still leaves the Buy to Let investment as one of the few available from which investors can get a reasonable return. So although the market may have faltered briefly, we expect it to continue to go from strength to strength, with investors still finding a great balance of rental returns and capital appreciation. This is probably what the taxman expects as well, they want the extra taxes and will not wish to kill the golden goose. If you want to understand the impact of the tax changes then the link below connects to what we believe is a great article which outlines the changes in detail.
Do the maths yourself and you will find that even with the changes Buy to Let still offers remarkable returns when compared to other investments.
http://www.thisismoney.co.uk/money/guides/article-2687432/Buy-let-What-tell-taxman-reduce-bill.html
Buy to Let and the taxman, an opinion March 8th, 2017jim1