Buy-to-let landlords shrug off UK tax rise in £1bn Treasury boostStamp duty surcharge raises nearly £1bn in six months as move fails to dampen sector
A tax surcharge on purchases of buy-to-let and second homes generated nearly £1bn for the Treasury in the last six months of 2016, suggesting landlords largely shrugged off efforts to dampen activity in the sector.
A three percentage point surcharge introduced in April 2016 raised £962m on residential property purchases in the six months to December, according to figures released on Tuesday by HM Revenue & Customs. The tax take comprised £519m in the last three months of the year and £443m in the quarter before that.
“Everyone is surprised that the 3 per cent [surcharge] has raised as much as it has,” said Lucian Cook, director of residential research at estate agent Savills. “The rise suggests landlords were starting to price it in and were getting used to the new environment.”
Those buying with cash were likely to be responsible for much of this activity: the number of loans issued for buy-to-let purchases in November 2016 was one-third down on the previous November, according to data from the Council of Mortgage Lenders.
Cash buyers, though hit by the stamp duty surcharge, have been unaffected by several other government and regulatory measures aimed at dousing an exuberant private rental market. These include the ending of higher-rate tax relief on mortgage interest payments — to be phased in from April 2017 — and new affordability constraints on buy-to-let lenders.
Henry Pryor, a buying agent, said the proportion of his clients buying second homes or buy-to-let properties with no borrowing was one-fifth higher in 2016 than the previous year. “The advantages of being leveraged aren’t as good as they once were,” he said.
Overall, stamp duty land tax on residential homes climbed to £8.28bn in 2016, 17 per cent higher than in 2015. For the final quarter, receipts were up 20 per cent on the previous year to £2.4bn.
The data showed investors’ attitudes towards the asset class remained favourable even as the authorities introduced new constraints on growth, Mr Cook said. “You’ve still got people who buy into the story of capital growth on residential property and the security of income in that context.”
The figures may give pause to those in the property industry who have been calling on the government to revisit the changes it has made to stamp duty since 2014. “The rise in total stamp duty revenue means those who argue that Philip Hammond should tinker with the regime, particularly at the top end, don’t yet have the data to support their argument,” said Mr Pryor.
Elsewhere in the figures, the tax take from residential properties owned by offshore companies jumped by 53 per cent to £178m last year, as the Treasury tightened its squeeze on home ownership structures used by wealthy foreigners.
HMRC said the rise in revenues in the year to April 2016 was driven by the increased rate and scope of the annual tax on “enveloped” dwellings (Ated), which was introduced in 2013 to deter people from owning expensive properties through companies.
As in previous years, about four-fifths of the tax was levied on properties in Westminster and Kensington & Chelsea.
The latest figures suggest the crackdown on offshore property structures — traditionally used to protect privacy and avoid inheritance tax — is starting to have an effect. HMRC said: “Declarations across all bands are likely to have fallen because many of the tax incentives for keeping a property in a corporate envelope have been removed.”
Although the number of buildings affected by the tax increased by 1,980 — or 53 per cent — over the year, this was solely because of the lowering of the threshold to £1m in April 2015, which brought an extra 2,260 properties into the tax.