Our cover story a few weeks ago was on the matter of buy-to-let. I also wrote about it here: Is this the end for but-to-let?
Our argument is that new rules limiting tax relief on buy-to-let mortgage interest to a 20% tax credit – regardless of the marginal rate of the borrower – would change the maths for a huge number of investors.
It’s a story that more and more people are beginning to understand. The Times wrote about it this weekend, noting – as we have – that “all higher-rate taxpayers will pay substantially more in tax, with some forced to pay more than they make in profits, making their investments unviable”.
The end of the ability to offset cost against tax might also move landlords who are currently lower-rate tax payers into the higher-rate band (or higher to highest). That’s something, says tax expert Tina Riches in The Times, that would restrict their personal allowances and access to child benefit.
This is upsetting a lot of people – 26,000 have already signed a petition to have the tax relief reinstated. But we doubt that’s going to happen. Instead of getting easier, the environment for buy-to-let investors is likely to get a lot tougher.
It’s all about Jeremy Corbyn – and something he and George Osborne might turn out to have in common. As Brian Dennehy of Fundexpert.co.uk points out, while Jeremy Corbyn is unlikely to ever be prime minister, he will change the focus of our political debate: “all parties are now going to have to start debating social justice” properly whether they want to or not. And the UK’s many housing have-nots are going to want to shift that conversation firmly towards the provision of affordable housing.
The buy-to-let sector has been pumped up by low interest rates, and by QE slamming down yields on other asset classes. Also, by a looser regulatory environment for investors than owner occupiers. And, of course, by the many tax breaks on offer to buy-to-let owners. Corbyn is likely to “focus on these distortions and the cost to society” when he discusses housing.
In that kind of environment, how likely is it that the chancellor will give into political pressure to drop his tax changes? We’d say very unlikely.
Worse (for investors at least) it might give Osborne the political cover/excuse he needs to cut the relief further. He knows rents are too high and house prices are inflated, and, given his actions so far, it seems clear that he wants to call an end to the great buy-to-let boom. Corbyn looks likely to be able to help him do just that.