Housing and property stocks hurt by Osborne's Budget buy-to-let and non-dom crackdowns

8th Jul 2015 15:57

London's housebuilders were hit by several measures unveiled by George Osborne in his Budget statement, with shares across the sector down in Wednesday afternoon trading.The Chancellor revealed measures to cut tax relief on mortgage interest for buy-to-let landlords, which was expected to take some of the froth out of the rental market in metropolitan areas.The measures will reduce the tax benefits that individual BTL landlords currently enjoy by phasing out higher tax rate interest relief. A withdrawal of the higher rate tax relief of up to a 45% tax rate will be phased-in over a four year period, starting in April 2017, with the tax relief limited to the 20% basic rate on BTL. However limited companies buying BTL properties will not be impacted.Osborne also tightened up rules on "non-domicile status", which was expected to hit the London property market in particular as it would drive wealthy foreigners out of the property market.Abolition of non-dom status, which is claimed by people who live in the UK for part of the year and claim their "permanent" home overseas in order to reduce taxes on any money they earn abroad, will take effect from April 2017 in order to bring in an additional £1.5bn in annual tax revenue.The proposed reform does not eliminate the tax status entirely, but will mean people who have lived in the UK for 15 of the past 20 years will lose the right to claim it.The chancellor also announced a crackdown on real estate owned "through foreign companies or other opaque structures", which are often used to reduce tax.Another measure outlined in the summer Budget was aimed at boosting levels of house-building, with the launch of The Housing Growth Partnership, which gives vital financial support to small and medium sized housebuilders and is aiming to help to increase the supply of new homes in the UK.Guy Ellison, head of UK equities at Investec, said: "We've seen a sell-off in house builders, estate agencies and those linked to finance within the buy-to-let market as the government will start to taper down the amount of mortgage tax relief that can be claimed by buy to let landlords to the minimum tax rate from 2017."Just before the close, Bellway was down 7.14%, Crest Nicholson down 6%, Barratt Developments down 5.8%, Taylor Wimpey down 5.1%, Persimmon down 4.9%, Redrow 4.7%, Foxtons down 4.4%, Galliford Try down 3.7%, Zoopla down 3.4%.But analysts at Nomura noted that landlords will still enjoy tax relief for mortgage interest but at the basic and not higher tax rate.They added that there would be no impact on professional landlords who operate through limited companies or special purpose vehicles and that the phasing-in period was "sufficiently long enough in our opinion to give landlords who operate in their personal name time to adjust"."In our opinion today's announcements do have a negative impact on BTL landlords operating in their personal name - so called 'amateur landlords' as opposed to 'professional landlords', as the tax relief is reduced. However because the phase in occurs over a multiple year period, we believe this gives landlords that do not currently operate in a limited company structure plenty of time to adjust."Nevertheless, we believe that the Chancellor's announcement today is negative for sentiment for those companies that are exposed to BTL lending."