Buy-to-let investors may get cut in tax

Published 04th Feb 2010

The Government may try to encourage institutional investors to become residential landlords by charging stamp duty per property, rather than on the total value, in bulk purchases of properties

The Government is considering granting stamp duty concessions on bulk buying of property to encourage institutional investors to become professional landlords.

In a consultation document issued yesterday, the Treasury said that it would also study ways to boost residential property investment through the use of real estate investment trusts (Reits), the tax-efficient investment vehicles that were set up in 2007 but which so far have invested mostly in commercial property.

The Treasury, in Investment in the Private Rented Sector, asked for evidence from the property industry to back calls to alter the way in which stamp duty is calculated on bulk buys so that it is charged per property, rather than on the whole transaction, potentially cutting the cost by thousands of pounds. Duty is 1 per cent on deals of £125,000 to £250,000; 3 per cent between £250,000 and £500,000 and 4 per cent on deals worth more than £500,000. If the rules were changed, a purchase of 100 properties worth £150,000 each would result in a stamp duty bill of £150,000, rather than £600,000.

The Treasury said that it would also consider removing barriers to investment in residential property via Reits after the consultation, which is due to end on April 28. Under the existing Reit structure, investors buy shares in the Reit rather than bricks and mortar. However, there has been little investment in residential property via the trusts because of the high charges of 2 per cent for companies converting into a Reit, which have dissuaded housebuilders and developers from setting them up.

The moves are part of an attempt to tackle Britain’s looming housing shortage and reflect concern that, in the absence of government funding, investment from institutional funds will be needed to build more homes to meet demand. At present three million households are privately rented.

Buy-to-let investors, who account for a fifth of new-build purchases, have suffered as a result of big falls in capital values and a lack of mortgage availability, exacerbating a shortage of rental accommodation, while housebuilders have scaled back development plans in the aftermath of the downturn, at a time when demand for rented accommodation is growing.

The report says: “We face significant long-term demographic pressures from a growing and more mobile population ... It has become clear that a persistent undersupply of housing has been a key contributor to the affordability problems that households have faced.

“The Private Rented Sector [PRS] plays a critical role within the housing system, helping to meet growing demand and providing a flexible tenure choice. It has also played a disproportionate role in funding new-build supply in recent years. It is important that the sector continues to grow to meet the housing challenge.”

Although Aviva Investors is preparing a £1 billion fund to invest in private rented accommodation in the South East and Legal & General is planning to invest in the sector. many institutional investors are not convinced that rental accommodation provides the long-term returns that they require.

To try to improve the image of renting as a viable form of tenure, the Government yesterday announced plans to launch a new housing hotline and a feedback website to protect tenants from unscrupulous landlords and offer information on renting.

The British Property Federation described the present stamp duty system as an “anomaly” and a “major disincentive” for large-scale professional investors, adding that charging stamp duty per property would reduce the total amount paid in all instances.

Source: ' Times '

View All Latest News