As we have mentioned on numerous occasions over the last few months, the UK government (as well as other governments around the world) has increased property-related taxes significantly over the last few years. As government grapple with budget deficits it seems that the relatively buoyant worldwide property market has been classified as “easy pickings” for additional tax income. If you read government supported articles you will no doubt get the impression this “increased tax take” is working, but what is really happening behind the scenes?
Stamp duty shortfall
Over the next five years there is expected to be a £10 billion stamp duty shortfall from the London property market alone. While Brexit obviously has short, medium and potentially long term implications for investor sentiment, many believe it is the ongoing increase in direct and indirect property taxes which is hitting investor confidence hardest. Let’s not forget that as the London property market grows there is a natural increase in tax take as prices move higher. So, was this plain greed when politicians decided to increase stamp duty to milk the market yet again?
Hitting investor sentiment
Time and time again we hear concerns about the state of the UK property market and a significant and growing shortfall in newbuilds, affordable properties and rental accommodation. Sometimes we hear governments promising billions of pounds of additional investment, as we did with the recent Autumn Statement, but this is just the tip of the iceberg. The promise of billions of pounds in additional investment makes for good headlines but this is not the answer to the U.K.’s long-term issues.
Whether you are considering buying property, stocks and shares or vintage cars, it is down to simple facts and figures whether you go ahead with the purchase. When you take into account the potential capital gains, residual income and offset this against any direct and indirect costs, you will have your answer. So, as many see the UK buy to let market as the answer to the U.K.’s long-term property issues why are some investors taking a step backwards?
Biting the hand that feeds you
As we touched on above, as property prices continue to grow, even maintaining direct and indirect property taxes at current levels will see every increasing income streams. The percentages may stay the same but because of property price increases the actual income in cold hard cash will increase. After encouraging investors to look at the buy to let market over the last decade or so, with what many saw as attractive tax incentives, it seems that politicians are now biting the hand that feeds them.
We have seen the introduction of many new regulations in the UK property market covering landlord responsibilities/obligations and greater protection for tenants. In many ways it seems that by going after the so-called “rogue operators” in the UK property market everybody is suffering. The simple fact is, if the figures do not stack up then property investors of today will look elsewhere for their capital appreciation and income of tomorrow. Where would this leave the UK government?
In a potentially worse situation with fewer newbuilds and greater growth in rental property demand compared to supply. While they said “Greed is good” in the film Wall Street, this is not always the case.