The budget from a couple of weeks ago included many expected changes – increases in cigarette duty and alcohol duty to name two of the usual suspects. One announcement which perhaps caught commentators and analysts unawares however was the planned tax cuts for bulk purchases of residential properties. After recent reductions in finance for the social housing sector have begun to filter down, the Coalition government appear to have identified the private sector and namely buy-to-let as the primary vehicle for delivering the country’s housing shortage solution.
The proposals announced mean that stamp duty on the purchase of more than one property will be charged on the average price, as opposed to the total, of the properties bought in a portfolio (subject to a minimum of 1%). Therefore, an investor buying a portfolio of, for example, 100 properties worth an average of £200,000 each will pay stamp duty of just 1% (£200,000) rather than 5% (£1m), saving £800,000 in duty.
The British Property Foundation welcomed the move and believe that such promotion of the private rental sector can give a much needed boost to homebuilding. Property agent CRBE went further estimating that institutional investors such as Aviva and Aegon, consistently linked with creating residential property funds, could now embark on investing £7.5bn worth of funds. The potential saving in stamp duty for such sums is substantial but will also be of interest for private landlords at all levels especially considering the squeeze on housing benefit and efficiency savings on Social Landlords enforced by the Coalition.
Also unveiled by the Chancellor were plans to make it simpler for such institutions to place residential property portfolios into tax-efficient investment trusts.
Whilst the announcements may encourage a surge in new professional landlords and larger institutional names to grow property portfolios, it remains to be seen whether increasing the supply of private rented houses to the market will assist in plugging the gap in Britain’s housing shortage. It will, however, undoubtedly create greater interest in the residential market and bulk purchases by investors seeking to take advantage of this unexpected cut.