Over the next few months, buy-to-let landlords are to be hit by a raft of tax changes. From stamp duty rates to capital gains tax to buy-to-let tax relief alterations, things look set to become even more difficult for BTL landlords running businesses in the UK.

Income Tax Rates 2022

The current personal allowance (the amount you can earn before paying income tax) is up £70 from last year, now standing at £12,570. This is to remain fixed until 2027 at the earliest.

For this tax year, BTL landlords generating income between £12,571 and £50,270 will be taxed at a rate of 20%, those earning above this £50,270 threshold will be subject to 40% taxation, while the £150,000 threshold paves the way for 45% or higher rate taxation.

Capital Gains Tax

One welcome change to BTL legislation is the extension of the time landlords have to report and pay capital gains tax, following the sale of a property.

Reduced significantly from 22 months to just 30 days in April 2020, the grace period has now been doubled to 60 days.

Increases in capital gains tax had been predicted for some time, but are set to remain unchanged for the time being.

Tax Credit

For this tax year, BTL business owners will again be able to claim a tax credit worth 20% on interest payments, rather than deducting mortgage costs from their rental income.

It has now been five years since the government introduced its controversial tax changes for BTL landlords, gradually reducing mortgage tax relief each year until it was wiped out entirely last year.

Companies House data suggests that more BTL landlords set up limited companies when purchasing new rental properties last year than ever before, in order to avoid higher rate personal income taxation by instead paying corporation tax at a fixed rate of 19%.

Buy-to-Let Stamp Duty

All stamp duty incentives for BTL property purchases in England have now ended, which up until October 2021 provided buyers with the opportunity to save (on average) £2,000.

As of now, normal stamp duty rates have resumed for investors in England, as follows:

Property price	Stamp duty rate
£0 — £125,000	3%
£125,001 — £250,000	5%
£250,001 — £925,000	8%
£925,001 — existing £1.5 million	13%
£1.5 million +	15%

 

 

Stamp duty obligations differ slightly for BTL property purchases in Scotland and Wales.

Other Buy-to-Let Regulation Changes

Along with the alterations to tax obligations outlined above, several further regulatory changes for BTL landlords have been outlined by the government.

Key proposals for the year ahead (part of the Levelling Up White Paper published by the government) include:

• A national landlord register
• the end of Section 21 evictions
• a minimum standard for all rental properties
• more fines and bans for rogue landlords

Legislation is also set to be introduced on the installation of CO2 alarms in BTL properties, along with the requirement for rental homes to meet elevated energy efficiency standards by law.

Monthly rent prices are increasing faster than at any time recorded since February 2017, new figures from the Office for National Statistics suggest. A further 2% increase in England was noted in the year leading up to January, while rents in Scotland were up 2.6% during the same time and 1.4% in Wales.

Last month, the average cost of renting a home in the UK reached a new high of £969 per month.

Speaking on behalf of Hargreaves, senior personal finance analyst Sarah Coles commented on the worrying trend of already cash-strapped renters facing even bigger financial challenges.

“Rents are rising faster than any time in the past five years, forcing tenants to choose between squeezing their spending even harder or uprooting their lives,” she said.

“Either way, they’ll end up worse off.”

East Midlands records the fastest growth in the UK

The fastest increase in private rental costs was noted in the East Midlands, up around 3.6% year-on-year. Despite being home to the UK’s most expensive rental properties, the slowest growth over the same period was recorded in London: an increase of just 0.1%.

With no let-up in sight, experts are forecasting further rent hikes for the foreseeable future, at least.

“It looks like rises are set to go further too,” added Coles.

“Those who can’t stretch their finances to cover their costs face the horrible upheaval and expense of moving home. If their current landlord withholds any of their deposit, they’ll have to find more cash to cover this, on top of the moving costs themselves, which means they’ll be worse off, whatever they do.”

“The Royal Institution of Chartered Surveyors research found that a slide in the number of properties for rent and another rise in tenant numbers are filling agents with confidence that rental prices will be on the rise for months or even years. It expects rent to rise to an average of 5% over the next five years.”

A further blow to prospective homeowners

With the housing sector maintaining its record-breaking momentum built up over the past 12 months, average property prices continue to price millions of would-be buyers out of the market entirely.

Over the course of the year leading up to January, average house prices in England hit a new high of £293,000, while the average cost of purchasing a home in Wales hit £203,000. Across the UK, the average market value of a home is now £275,000, the highest in history.

Alan Fitzpatrick, vice president of lending operations at mortgage specialist Hibito, explained the significance of this year-on-year increase.

“This ONS data reflects the year of the Stamp Duty Holiday, from the first deadline in March, the extended deadline in June, and the lower threshold, which was payable until the end of September,” he said.

“To put this incredible one-year price rise into more context, £27,000 would be the 2022 take-home salary post-tax of someone earning £35,000 (more than the UK average full-time salary, which is £31,285).”

Looking ahead, Quilter mortgage experts see an eventual slowdown occurring, but not on such a level as to prove any real value to struggling buyers or renters.

“Any hopes of a downward tick in house prices have once again been dashed,” she said.

“While a reduction in house prices has not yet materialised, it seems inevitable that there will be a slowdown during the coming year, and there are many factors currently at play that could contribute.”

“While the scales of supply and demand remain firmly tipped in favour of the nation’s home sellers, there’s a good chance that the high rate of house price growth seen during the pandemic will now subside, replaced by more incremental gains during the year ahead,” he said.

According to the PMI (HIS Market/CIPS UK Construction Purchasing Managers’ Index), the construction industry across the UK has grown at its quickest pace over the last six months, with the demand for more developments going through the roof.

Data showed an increased growth of 56.3 in the first month of the year, up from 54.3 in December 2021, indicating a strong start to 2022.

The last year has seen significant growth month on month, with figures above 50.0 indicating an expansion of the construction industry.

The report posted that, due to continuing haulage and delivery issues, as well as shortages in construction staff, there have been significant delays in receiving goods from suppliers.

The report added: “However, the peak phase of supply chain difficulties appears to have passed as the latest downturn in vendor performance was the smallest since September 2020.”

When looking at the individual areas of the development industry, it was noted that the house building sector showed the slowest increase in growth in the previous four months with figures of 54.3, while civil engineering stood at a growth of 53.2, but the best performer at 57.6 was commercial development.

Tim Moore, IHS Market Director, said: “Residential work increased at one of the slowest rates since spring 2020, which is an early sign that cost of living concerns and rising interest rates could start to dampen the post-lockdown surge in spending.”

Brokerage XTB market analyst, added: “The UK construction sector continued to gain momentum after a difficult end to 2021 thanks to an improvement in commercial activity, which helped offset a weak rise in house building.

“Improvements were also helped by a drop in cost inflation, which fell to a 10-month low thanks to an easing of supply issues, which have been affecting the sector for months.

“As a result, commercial work helped construction growth reach a six-month high, but with supplier lead times continuing to lengthen in January as staff shortages and a lack of haulage availability hindered deliveries, the situation continues to be uncertain.”

On the 3^rd of this month, the B.O.E.’s Monetary Policy Committee increased the base rate from 0.25 to 0.5 in an attempt to combat the increasing inflation rate. The current inflation rate is 5.4%, which is predominantly due to the massive price hikes in gas and electricity. Inflation currently exceeds the Bank of England’s target by a massive 2%. The inflation rate is expected to hit its peak at 7.25% in April, which is approximately 2% higher than was predicted back in November 2021.

 

The hot topic of conversation among investors and developers at the moment is the exponential growth of the build-to-rent sector over the last few years. With the ever-increasing demand for rental properties, it isn’t surprising that this niche area of the property market has really taken off.

Up until now, the build-to-rent industry has been mainly led by London, but there are many regional towns and cities that are following suit, leading to a prediction by Savills that the size of the sector will double over the next few years.

Build-to-rent developments are giving the buy-to-let market some serious competition as they are tailored to suit the needs of today’s typical renter, often offering facilities that wouldn’t be seen in a traditional BTL property.

These BTR developments tend to be backed by institutional investors; however, there are always opportunities for individuals to invest in these projects.

The BPF (British Property Federation) has been analysing the performance of the build-to-rent market in order to report on its importance in tackling the housing shortage for UK renters.

While the sector has previously been more predominant in London, there is a significant increase in investment into BTR developments in other areas of the UK, particularly in the North. The last twelve months have seen 13,527 new homes currently under construction in regional cities, which is three times the number seen in London.

BPF director of real estate, Ian Fletcher, says: “The build-to-rent sector continues to expand rapidly, and in 2021 we started to see signs that delivery across the regions is beginning to outpace London.

“It is not just about increasing housing provision; it is a major economic driver, helping attract and retain skilled workers and serving as a catalyst for urban regeneration.

“The strong growth of the BTR sector across the regions will support the government’s levelling-up initiative and help revitalise town and city centres.”

The growth of the build-to-let sector can be mainly attributed to the desperate need for affordable rental property, as demand is significantly higher than supply. With more people taking on mortgages later on in life or deciding that they prefer the flexibility that the renting world offers, it can be safely predicted that the market for BTL will continue to grow in strength.

Buy-to-let developments are typically looking at long-term residents when it comes to the facilities that they offer. For example, communal outside spaces, workspaces, gyms, and other conveniences would suit today’s modern living, particularly for people who work from home.

Data released by BPF shows 70,785 buy-to-rent units in the UK, an increase of 26% from the previous year. 141,215 BTR properties are under construction or currently being planned, which is an increase of ten thousand since 2020.

Manchester, Sheffield, Birmingham, and Liverpool have seen a year-on-year rise of 27% in buy-to-let properties under construction. This is an increase of around 26,820 as of the last quarter of 2021.

Jacqui Daly, a director of residential research at Savills, says: “The geographic spread of build-to-rent shows that many more local authorities are beginning to understand the need for new rental stock, and planning consents are rising as a consequence.

“At the same time, BTR is becoming hugely competitive for investors, with a record level of capital deployed in the sector in 2021. If investors are able to find markets and stocks to invest in, we expect delivery in the sector to double within a few years.”

Another vital advantage of the growth of the build-to-let market is the positive impact it can have on the environment, as developments are designed to support the government’s ESG (environmental and social governance) targets.

Robert Sloss, group chief executive and founder of HUB Residential, says: “City living in well-designed buildings can significantly reduce residents’ carbon footprints, so it is encouraging that metropolitan BTR is increasingly in demand across the country. We want to see an intelligent and measurable approach to carbon reduction and ESG.”