UK plans tax rise on buy-to-let and second homes

By Costas Pitas

LONDON (Reuters) - Britain is to increase a tax on buy-to-let and second homes to ease demand for those squeezed out by house price rises but early reactions from some analysts warned that many undeterred investors will instead pass the cost on in higher rents.

Double-digit price rises in London last year and at the start of 2015 have led to criticism that individuals who snap up properties to rent them out have stopped would-be first-time buyers from getting a foot on the property ladder.

On Wednesday, Chancellor George Osborne, unveiling a raft of measures to boost revenues and cut spending, said he would introduce an additional 3 percent on the stamp duty property tax for second homes and buy-to-let properties from April.

"People buying a home to let should not be squeezing out families who can’t afford a home to buy," he told parliament.

The government will launch a consultation on the proposed changes to the tax, which is paid by the buyer of a property, and will make sure that corporate property development is not affected.

But the chief executive of the Federation of Master Builders questioned whether the extra tax would dissuade investors from buying, instead suggesting tenants could end up footing the bill.

"I think buy-to-let buyers will offset the cost and the danger is that might be passed on in terms of higher rents," Brian Berry told Reuters.

Stamp duty, which is levied in bands according to the market value of a property, was cut for most people in December, six months before a general election which the ruling Conservatives won with an unexpected outright majority.

But earlier this year, the government said that it would restrict the amount of income tax relief landlords could get on residential property mortgages, in a blow to buy-to-let investors.

Michael Wistow, Head of Tax at international law firm Berwin Leighton Paisner, also believed the latest rise could be passed on in higher rents and questioned the logic of a change which will not affect larger firms but hit smaller investors.

Those buying six or more residential properties in one transaction are subject to a different system, often with lower stamp duty based on the value of all the properties added together unlike small investors who tend to pay per home.

"They're going to be spanked for tax but if it's some pension fund or investor who's got a large portfolio they don't pay the additional taxes," Wistow said.

(Editing by Stephen Addison)