Share

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:

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

Old Mutual Wealth oversees £131.3 billion in customer investments (as at 30 September 2017).

It has an adviser and customer offering spanning: Financial advice; investment platforms; multi-asset and single strategy 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; Old Mutual Wealth Private Client Advisers; discretionary fund management business, Quilter Cheviot; and Old Mutual Wealth’s multi-asset investment solutions business.

Old Mutual Global Investors (‘OMGI’) is the asset management business of Old Mutual Wealth with £39.8bn funds under management (as at 30 September 2017). On the 19th December 2017, Old Mutual Wealth announced that it has agreed to sell its Single Strategy asset management business to the Single Strategy Management team and funds managed by TA Associates. The proposed transaction is subject to customary closing conditions, including regulatory approvals. 

Following managed separation from Old Mutual plc, Old Mutual Wealth will rebrand to Quilter plc. Each of the businesses within the Quilter Plc group will be rebranded over a two-year period, with the exception of Quilter Cheviot, which will retain its existing name.

Old Mutual Wealth is part of Old Mutual plc, a FTSE 100 group that provides life assurance, asset management, banking and general insurance. Old Mutual is trusted by more than 19.4 million (as at 31 December 2016) customers across the world and has a total of £212.3 billion of assets under management (as at 30 June 2017).

NOT FOR DISTRIBUTION OR RELEASE, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN, OR ANY OTHER JURISDICTION IN WHICH THE DISTRIBUTION OR RELEASE WOULD BE UNLAWFUL.

These materials are not an offer to sell, or a solicitation of an offer to purchase, securities in the United States. The securities to which these materials relate have not been registered under the US Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. There will be no public offering of the securities in the United States.

These materials do not constitute or form a part of any offer or solicitation or advertisement to purchase and/or subscribe for Securities in South Africa, including an offer to the public for the sale of, or subscription for, or the solicitation or advertisement of an offer to buy and/or subscribe for, shares as defined in the South African Companies Act, No. 71 of 2008 (as amended) or otherwise (the “Act”) and will not be distributed to any person in South Africa in any manner that could be construed as an offer to the public in terms of the Act. These materials do not constitute a prospectus registered and/or issued in terms of the Act. Nothing in these materials should be viewed, or construed, as “advice”, as that term is used in the South African Financial Markets Act, No. 19 of 2012, as amended, and/or Financial Advisory and Intermediary Services Act, No. 37 of 2002, as amended.

These materials are distributed in any member state of the European Economic Area which applies Directive 2003/71/EC (such Directive, together with any amendments thereto including Directive 2010/73/EU, the “Prospectus Directive”) only to those persons who are qualified investors for the purposes of the Prospectus Directive in such member state, and such other persons as these materials may be addressed to on legal grounds, and no person that is not a relevant person or qualified investor may act or rely on this document or any of its contents.

This document is being distributed to and is only directed at: (i) persons who are outside the United Kingdom; or (ii) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 as amended (the “Order”); or (iii) high net worth companies, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons in (i), (ii) and (iii) above together being referred to as “relevant persons”). Any invitation, offer or agreement to subscribe, purchase or otherwise acquire securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

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

Please remember that past performance is not a guide to future performance. The value of investments and the income from them can go down as well as up and investors may not get back any of the amount originally invested. Exchange rate changes may cause the value of overseas investments to rise or fall.

This communication is issued by Old Mutual Wealth Management Limited, a Private Limited Company (Company Number 0604270), Old Mutual House Portland Terrace Southampton Hampshire SO14 7EJ.