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Autumn Statement – buy-to-let investors dealt another blow

26/11/2015

Rachael Griffin, financial planning expert at Old Mutual Wealth comment on the Autumn Statement, including the blow dealt to buy-to-let investors and changes to capital gains tax.

 

1. Buy to let investors dealt another blow in Autumn Statement

Buy to let investors and second home owners were dealt a blow in today’s Autumn Statement after Chancellor George Osborne announced an increase in stamp duty for buy to let investors and changes to the way CGT is paid on residential property.

If you are covering these stories, please see the following commentary from Old Mutual Wealth financial planning expert Rachael Griffin.

Stamp duty

From 1 April 2016, an increased rate of Stamp Duty will be due on second homes, including buy-to-let property investments.

The additional rate will be 3% on top of the normal stamp duty applicable.*

  • For a £150,000 house sale, stamp duty will be £5000, in comparison to £500 today.
  • A 200,000 house: £7500 compared to £1500 today
  • A £300,000 house: £14000 compared to £5000 today

(These figures were updated on 26/11/15 to reflect clarification received in regard to the changes to Stamp Duty Land Tax. The higher rate of SDLT will apply on the first £125,000 of the value of the property and not on the value between £40,000 and £125,000 (£85,000) as originally thought. The final policy wording is subject to consultation.)

Rachael Griffin says:

“The Government expects to pocket £880m a year from this measure by 2020-21, making it another major blow for buy-to-let investors following the curb on mortgage interest tax relief announced in the summer.

“The stamp duty on a £150,000 buy to let property will now cost 10 ten times more than under today’s sytem.”

“Many landlords are already concerned that the margins on buy to let investment are being squeezed and for some this may be the final nail in the coffin.

“Prior to the introduction of pension freedom reforms in April this year there was significant speculation about a boom in buy to let investing from the over-55s.

“Our own research suggests that in fact only 7% of those approaching retirement are eyeing buy to let income to fund their retirement, down from 11% in 2014.**

“Today’s announcement will further dampen interest in buy to let and those considering their long-term savings option away from the property market should think about their other tax allowances such as Isas and pensions.

“It is a particularly good time to be placing additional funds into a pension in order to take advantage of the generous tax relief currently available, before possible changes are introduced next year.”

2. CGT

Under current rules CGT is paid at the end of the tax year. This allows individuals to offset any losses made through the year against gains and pay the correct amount of tax.

The Government wants to speed up the payment of CGT. From 2019, rather than reconciling at the end of the tax year, individuals will have to pay CGT within 30 days of the disposal of residential property.

This will only affect those with multiple properties, as primary residences are exempt.

Rachael Griffin says:

“This means that anyone selling a property other than their main home will now have to pay capital gains tax of between 18-28% within 30 days of completion.

“As a result, people will have to pay the full amount of CGT to the Revenue, and we expect they will only be able to recover any overpaid amounts at the end of the tax year.

“This is not dissimilar to tax rebates on overpaid income tax and will, in effect, mean that individuals end up ‘loaning money’ to the Revenue until it can be recovered.

“The new HMRC IT system will also need to be up and running in 2019 in order to allow these changes to be implemented. There is likely to be a lot of confusion if the systems developed by HMRC do not perform as planned.

“We await draft legislation in 2016, which should clarify exactly how this process is likely to operate.”

*Autumn Statement 2015: ‘Higher rates of Stamp Duty Land Tax (SDLT) will be charged on purchases of additional residential properties, such as buy to let properties and second homes, with effect from 1 April 2016. The higher rates will be 3 percentage points above the current SDLT rates.’

Property purchase price

SDLT rate from 4 December 2014

New SDLT rate from April 1 2016

Up to £40,000

Zero

Zero

£40,000 Up to £125,000

Zero

3%

The next £125,000 (the portion from £125,001 to £250,000)

2%

5%

The next £675,000 (the portion from £250,001 to £925,000)

5%

8%

The next £575,000 (the portion from £925,001 to £1.5 million)

10%

13%

The remaining amount (the portion above £1.5 million)

12%

15%

 

**Old Mutual Wealth Redefining Retirement report. Research conducted with YouGov. 

3. Deeds of variation:  

“A deed of variation can be useful as it provides beneficiaries with the flexibility to pass inherited assets straight on to the next generation, so they essentially skip a generation. Passing assets on in this way means the assets escape being caught in the beneficiaries’ estate, preventing future inheritance tax concerns.  The fact that the Government will be monitoring this activity could make it vulnerable to change in the future. Therefore, when people are considering how best to pass assets on to all beneficiaries, it may be more effective to pass some assets on, to say grandchildren, during their lifetime, and the use of trusts in this type of planning can be a real advantage.”

3.37 Deeds of variation – Following the review announced at March Budget 2015, the government will not introduce new restrictions on how deeds of variation can be used for tax purposes but will continue to monitor their use.

4. ISA – changes on death:

“Preserving the tax advantages of an ISA whilst an estate is in administration can be extremely beneficial especially as many ISAs now hold tens of thousands of pounds. The administration process can take months, if not years, so this could make a real difference.”

3.34 ISAs: tax advantages during the administration of an estate – The government will legislate to allow the ISA savings of a deceased person to continue to benefit from tax advantages during the administration of their estate and will set out further plans for introducing this measure in 2016, following technical consultation with ISA providers. (Finance Bill 2016)

5. Tax evasion:

“The Chancellor is standing firm on the tougher measures announced previously and will press ahead with the new criminal offence which removes the need to prove ‘intent’ when prosecuting someone for failing to declare offshore income and gains. With the introduction of the common reporting standards between 90+ countries, tax evaders will be easier to identify. People should focus on legitimising their assets while they can and start to look at how they can restructure their investments to simplify and improve their reporting requirements and tax liability.” 

3.77 A new criminal offence for tax evasion – The government will introduce a new

criminal offence that removes the need to prove intent for the most serious cases of failing to

declare offshore income and gains. (Finance Bill 2016)

6. Investment Bond withdrawals – no changes announced today but changes are expected imminently.

“Whilst there was nothing in today’s Autumn Statement which addresses the unequitable outcome a customer may face if they take an investment bond withdrawal in the wrong way, we do expect changes in this area to be announced shortly.”

7. Tax avoidance; nowhere left to hide (sent to International press contacts)

“Today we see the Chancellor continue his theme of tax avoidance. He is standing firm on the tougher measures announced previously and will press ahead with the new criminal offence which removes the need to prove ‘intent’ when prosecuting someone for failing to declare offshore income and gains. The new 60% charge under the General Anti Abuse Rule will also put a clear structure in place to penalise someone investing in a scheme designed to avoid tax. It will also become harder to market such tax avoidance schemes. People need to face up to the disclosure requirements now in place, and start to look at how they can restructure their investments to simplify and improve their reporting requirements and tax liability.”  

For more information contact:

Tim Skelton-Smith

M: 07824 414076

E: tim.skelton-smith@omwealth.com

 

Michael Glenister

M: 07469 144535

E: michael.glenister@omwealth.com

Notes to editors:

About Quilter plc:

Quilter plc is a leading wealth management business in the UK and internationally, helping to create prosperity for the generations of today and tomorrow.

Quilter plc oversees £118.1 billion in customer investments (as at 30 September 2018).

It has an adviser and customer offering spanning: financial advice; investment platforms; multi-asset investment solutions and discretionary fund management.

The business is comprised of two segments: Wealth Platforms and Advice and Wealth Management.

Wealth Platforms includes the Old Mutual Wealth UK Platform; Old Mutual International, including AAM Advisory in Singapore; and the Old Mutual Wealth Heritage life assurance business.

Advice and Wealth Management encompasses the financial planning network, Intrinsic; Quilter Private Client Advisers; discretionary fund management business, Quilter Cheviot; and Quilter Investors, the Multi-asset investment solutions business.

The Quilter plc businesses are being re-branded to Quilter over a period of approximately two years:

• The Multi-asset business is now Quilter Investors

• Intrinsic to Quilter Financial Planning

• The private client advisers business is now Quilter Private Client Advisers

• The UK Platform to Quilter Wealth Solutions

• The International business to Quilter International

• The Heritage life assurance business to Quilter Life Assurance

• Quilter Cheviot will retain its name

This press release is for journalists only and should not be relied upon by financial advisers or customers.

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