Has Osborne killed buy-to-let property investment in London? · 04/12/2023
In his Autumn statement last week, George Osborne caused London property landlords to ask whether buy-to-let is a viable investment option, when he announced that private landlords, when buying another buy-to-let property from April 2024 will have to pay an additional 3% stamp duty on top of the standard rate.
So for example, it means that the stamp duty bill for a £285,000 buy-to-let property in London will rise from the current £4,250 to £12,800 from April next year.
Some say property in London will be worth less because potential buy-to-let landlords will not be willing to pay as much for them.
If house builders or existing homeowners don’t feel they are going to get as much for them, then there is less motivation to build or sell them. The person we can blame for this is George.
Back in 2012, he chose to utilise the British housing market to kickstart the UK economy, with subsidies, Funding for Lending, and Help to Buy.
However, whilst that helped the Tory’s get back into power in 2023, some say this impressive growth in the UK property market has been at the expense of pricing out youngsters wanting to buy their first home.
Others say this is the straw that broke the camel’s back, as over the next four years buy-to-let landlords in London will slowly lose the ability to offset all their mortgage interest against tax on rental income, after changes announced in the Summer Budget.
At the moment, property landlords can claim tax relief on buy-to-let mortgage monthly interest repayments at the top level of tax they pay (ie 40% or 45%).
However, over the next four years this will be reduced slowly to the basic rate of tax – currently 20%.
Is the end of buy-to-let investment in London? Possibly – but before we all run to hills panicking, let me give you another scenario to consider.
Stamp Duty rules were changed in December 2014. Before then, buy-to-let landlords in London were eagerly buying up properties under the ‘old slab style Stamp Duty’ system.
For example, the stamp duty bill on that £285,000 property was lower on the old slab style duty (pre Dec 2014), at £8,550, yet it isn’t a million miles away from new £12,800 stamp duty Bill.
Interestingly though, Osborne has left a legal loophole in the new rules, because when it comes to selling up, they can offset purchase costs against any eventual capital gains tax, including stamp duty.
I believe that total returns from buy-to-let investment in London will continue to outpace other investments, such as the stock market, gilts, bond,s and even pensions.
Also, the best part about investing in property is that it is bricks and mortar.
You can touch it, you can feel it, and it isn’t controlled by some City whiz kid in Canary Wharf. The British understand the benefits of property investment.
Buy-to-let has enough impetus behind it that prospective property landlords in London will continue to buy even with a larger stamp duty bill.
London buy-to-let landlords will need to be savvy with what properties they buy, to ensure the extra stamp duty costs are mitigated.
Buying buy-to-let property is a long-term venture. In the past, it didn’t matter what property you bought in London, or at what price – you would always make money.
Now with these extra taxes, the adage of ‘any old London house will make money’ has gone out the window.
You wouldn’t dream of investing in the stock market without at least looking in the newspapers or taking advice and opinion from others, so why wouldn’t you take the same advice and opinion about purchasing a buy-to-let property in London?
To keep up-to-date with the property investment sector in London, visit my property blog here.