Why would a tax boost not tempt property investors? - David Alexander

When government offers a tax boost benefitting the buy to let purchaser, you’d expect investors to pitch in big time… wouldn’t you? Well, perhaps not, given new evidence examining the relationship between buy to let purchases and the recent stamp duty (in Scotland, LBTT), “holiday”.

Mark Bonnar in the new series of Guilt

Concerns that the tax break would be some sort of dripping roast for landlords and give them further advantage over owner-occupiers have been quashed by a report, from Hamptons, which shows the share of properties bought by investors during the “holiday” increased by only 1 per cent. This compares to a similar period, a few years ago, ahead of the introduction of a stamp duty/LBTT surcharge on second and investment homes despite similar tax savings on offer. Back then, the share of properties bought by landlords was 11 per cent – and rose to 12 per cent during it. (Just for reference the LBTT relief period was shorter in Scotland than in England and Wales).

So why were landlords more reluctant – in relative terms – to take advantage of a tax break this time?

Well, the fear and uncertainty, brought about by the pandemic – unique in the lifetimes of most of us - must have been a factor, although this was relieved a few months after the start of lockdown when the sales market suddenly and unexpectedly took off. Demand for lettings, by contrast, seemed moribund at times but the market has turned around in the past few months and, according to the same report, rents rose, on average, across Britain by 8 per cent in September. The rise in Scotland was actually more at 10.2pc but rents in the country’s greatest hotspot – i.e. Inner London – actually reduced by 4.4 percent, proving that rent levels are fluid and rises not necessarily permanent.

David Alexander is managing director of DJ Alexander

The second major influence on landlords this time must have been the fiscal changes since 2016 which have increased the tax burden on rental income and sales surpluses. Buy to let remains competitive compared to other investment vehicles but the advantage, for the reason stated above, has become more marginal than before. We should therefore be wary of more restrictions which adversely affect future returns because a further decline in investor interest will inevitably lead to a reduction in properties available to rent.

On a lighter note, fans have welcomed the return of “Guilt”, one of last year’s more successful comedy-dramas from BBC TV.

The new second series has dodgy Edinburgh lawyer, Max McCall, recently released from prison after serving two years for fraud and trying to rebuild his shattered life. However, just as in the first series, things don’t go smoothly for Max and he soon gets immersed in a complicated plot, part of which involves the development of a large brownfield site, marked for a mixed commercial/residential property scheme and entitled “New Leith”.

However on the television screen, the outdoor scenes of New Leith don’t look very much like…..Leith. In fact the giveaway is in the rows of tenement flats in the background, all composed of the red sandstone that is synonymous with Glasgow and which is rarely found in Edinburgh.

Now the production team may have had good economic and logistical reasons for filming these scenes in Glasgow but I suspect it also had something to do with the fact that a gap site of this extent could simply not be found in Leith.

Yet, as this column pointed out recently, the city council is insisting that the severe shortage of the whole range of homes in Edinburgh can be filled using gap sites within the current built-up area and that there is therefore no need to permit house-building on the vast area of virgin land in the west of the city, except for permissions already granted.

As the saying goes, sometimes truth is stranger than fiction.

David Alexander is managing director of DJ Alexander