Tonic for buy-to-let market

The buy-to-let market received a boost this week after the government announced it would cut the tax cost of buying multiple residential properties, potentially unlocking £7.5bn of investment into the private rented sector.

Property experts said the change would encourage more professional landlords and larger institutional investors to build up their portfolios, increasing the supply of private rented houses to the market.

Under the new rules, investors will be charged on the average, rather than the total, price of the properties bought in a portfolio, subject to a minimum rate of 1 per cent. This means that an investor buying a portfolio of 100 properties worth an average of £200,000 each will pay stamp duty of 1 per cent rather than 5 per cent – the new higher stamp duty rate coming into effect from April 6. The new relief is expected to apply from this summer when the 2011 Finance Act comes into effect.

The British Property Federation (BPF), which had campaigned for the change, said it would tip the balance in encouraging institutional funds into building homes. “Using the average price is fairer and a welcome measure of support for those in need of rented housing,” said Ian Fletcher of the BPF.

CBRE, the property group, has estimated that institutional investors have allocated around £7.5bn worth of funds towards residential property.

In other stamp duty changes, the chancellor announced the introduction of three new anti-avoidance measures to address the abuse of stamp duty land tax (SDLT) rules. But tax experts believe the clampdown will not eliminate SDLT planning for wealthy homebuyers.