I was about to begin this piece with a comment that it’s been noticeable how prevalent news stories about the buy-to-let (BTL) and private rental sectors have figured in the national media conversation recently, and then I thought there is barely a month when this isn’t the case anyway.
It struck me that I sometimes wish policymakers and politicians spent just as much time considering the repercussions of both ongoing and potential measures that affect the sectors.
We as an industry and our trade press, and national media to a lesser extent, are continually weighing up what has been introduced, and what might be coming down the track, highlighting the potential and actual consequences; while for those who actually introduce such policies, the impact often seems like an afterthought not truly understanding just how connected these elements, practitioners, and stakeholders are.
Not having a binary view
There’s a shorthand approach that has continued to operate, along the lines of ‘landlord: bad, tenant: good’, not understanding the picture is much more nuanced.
Heaping greater levels of regulation and cost on landlords will naturally impact their commitment and ability to operate in the sector, and that ultimately demand outweighs supply, and therefore pursuing measures that shrink supply further will impact rental costs.
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We are a few weeks away from the Budget of 30 October and the mood music around this suggests landlords who hold their properties in their own names, and therefore could incur capital gains tax (CGT) on any sale, are going to find the rates charged move up.
Making hasty decisions
There has been some evidence that landlords have sought to use the last couple of months to get ahead of any such changes and to sell properties before a hike in CGT is introduced.
The problem, of course, with such sales is that we know many landlords/investors who might ordinarily take such properties off other landlords’ hands are much more inclined to wait and see what the Budget does actually hold for them.
However, I guarantee that if the price was right, properties sold in such circumstances will have changed hands.
The limited company trend in BTL
What I can certainly see, as a result of any such measure – if it is announced in the Budget – is that the move towards limited company BTL will continue.
It is already the dominant form of investment in our sector, due as we know to the changes to mortgage interest tax relief, and any CGT increase for individuals will only heighten such moves. Our own Fleet data – issued every quarter via our Rental Barometer research – shows we tend to hover around 75/80% of all our applications coming in from limited company landlord borrowers, and the rest private investors.
For Q3 2024, this was up 9% year-on-year, and with any Budget change potentially being introduced from the next tax year, I would expect that to rise even further in the months and years ahead.
The one issue that has tended to hold back limited company BTL investment is the significant number of what I call legacy investment properties held by individuals in the years prior to 2015 when the then Chancellor, George Osborne, moved the tax relief down to the basic rate.
As advisers will know, any movement of individually held properties to a limited company is considered a sale, and therefore subject to stamp duty, the costs of which can be significant and have – up until now – made it less worthwhile in pursuing such a change.
I now wonder, if the new government does change CGT rates on sales of second homes and BTLs, etc, whether more landlords might consider this ‘sale’ and we might see an increasing number of existing properties moved into limited company vehicles.
Of course, it will depend on the maths of the situation, but perhaps if the landlord has a medium- to longer-term timescale for holding property investments, it could be a move worth making.
Advisers may of course see more of this type of client and it’s absolutely vital they put them in touch with a tax adviser rather than being drawn into making any sort of comment on this, which could be perceived as tax advice.
What I do know is that the limited company dominance of our sector – particularly for new purchases – is only going to continue, and that the professional/portfolio landlord is likely to remain the dominant player.
Our own figures reveal 58% of our applications in Q3 came from landlords who hold more than four properties, with 31% owning 1-3, and 10% being a first-time landlord.
That theme is likely to continue and those advisers who are well-versed in the product options available to bigger portfolio, limited company landlords are likely to be the ones who thrive.
The previous Conservative government shifted the underlying foundations of the BTL market and landlord participants for good, and we should be prepared for more of the same in the next five years.
