Scrapping Buy To Let Tax Break Risk

Scrapping Buy To Let Tax Break Risk.

We have seen on numerous financial services websites today new calls for expenses tax break relief to be scrapped on buy to let properties.

In one article, Legal Marketing Services suggested that HMRC could save £14 billion in tax relief. This could be achieved by not allowing property investors to offset interest payments against rental income received. The result of this could be that investors move away from property investing thereby releasing more property to the first-time buyer market as well as saving the government significant amounts of money by collecting more taxes from property investors who decide to retain their investment properties.

Comment

There are pros and cons to this type of action and whilst it makes sense to increase property supply we believe it is actually extremely dangerous for the property market as a whole and could result in a property price crash. It also does not make sense as there is little or no revenue to HMRC for privately owned homes with the exception of stamp duty as we are all allowed to sell our main residence capital gains tax free under private residence relief rules. In addition, it goes against the basic fundamentals of running a business and being allowed to offset your business expenses against business income.

In addition, by dragging property prices down, people become less confident, spend less and many could be cought with negative equity.  We just cannot see this happening.

We suggest, it is more likely that a wealth tax would be introduced, similar to European wealth taxes and indeed the precedent has already been set where properties owned inside corporate envelopes are taxed under ATED (annual tax on enveloped dwellings). The mechanism is already in place for ATED and it is not a huge leap to include all investment properties within a similar taxation regime and we suggest this is the more likely outcome.

Watch this space for an investment property ' wealth tax' at the emergency budget in July or indeed the main budget in March 2016.