Recent reports suggest that the buy-to-let market is cooling after recent measures introduced by the government to control the power of landlords and other individuals buying second properties.
The new 3% additional tax was one of the measures introduced in April 2016. In short, it levied an extra tax on top of stamp duty, which was meant as an attempt to cut back on the accumulation of properties by private landlords.
Another attempt to introduce rent control was the removal of tax relief on mortgage interest altogether which came into April this year.
The laws affected mainly individuals, but not companies, and this has not gone unnoticed. In fact, some individuals are continuing to exploit the loopholes.
One such measure is to buy commercial properties for conversions into private flats. Commercial properties are unaffected by the additional tax levy, and hence at the point of purchase the tax is lower.
Some individuals have also set themselves up as a company, and purchases are done via the company. While many of them claim this tidies up the accounts – as the properties come under the financial expenses of the company, others accuse them of profiting from this because the interest is treated in a business expense.
It appears that many private landlords too are contemplating that the company structure is the way forward for them. Certainly, it seems that many considering investing in buy to lets are setting up companies first, and then making purchases. Those who have yet to set up companies but wish to assimilate this form of structure may find that they are coming under the financial squeeze of the government.
What does that hold for the rental market and the many thousands of young professionals that are dependent on renting as a step to the housing ladder? It appears it may be a step they never come down from. Landlords – in the form of companies – may only resort to raising rents in order to cover costs.