LONDON (Alliance News) - Shares in UK housebuilders and buy-to-let lenders dropped on Wednesday afternoon after Chancellor George Osborne used his Summer Budget announcement to outline plans to restrict the tax relief offered to buy-to-let landlords.
Osborne said the government will restrict the relief on finance costs offered to residential landlords to the basic rate of income tax. The restriction will be phased-in over the course of four years, starting in April 2017.
"This will reduce the distorting effect the tax treatment of property has on investment and mean individual landlords are not treated differently based on the rate of income tax that they pay. It will also shift the balance between landlords and homeowners," Osborne said.
The chancellor also said the government will reform how residential landlords can account for the costs they incur in improving and maintaining their rental property. At present, landlords are able to deduct 10% of their rent income from their profit in order to account for so-called "wear-and-tear" on their properties, meaning they can reduce their tax liability even when they have not improved the property.
Starting in April 2016, the government will replace this allowance with a new system which allows all landlords to only deduct costs that they actually incur.
The clampdown on the tax treatment of residential landlords hit shares in housebuilders, with FTSE 100 constituents Barratt Developments PLC, Taylor Wimpey PLC and Persimmon all seeing their shares drop to sit among the worst performers in the blue-chip index. Barratt shares were down 3.8% to 606.5 pence, Taylor Wimpey shares down 3.0% to 180.00 pence and Persimmon shares down 2.4% to 1,921.00 pence.
It was the same story for housebuilders in the FTSE 250, with Berkeley Group Holdings PLC down 6% to 3,137.00 pence, Crest Nicholson Holdings PLC down 4.6% to 523.5 pence, Bellway PLC down 3.6% to 2,307.00 pence, Galliford Try PLC down 3.0% to 1,670.54 pence and Bovis Homes Group PLC down 2.5% to 1,099.28 pence. All were among the worst performers in the index.
The news also hit shares in estate agents and property portals in the FTSE 250, with Foxtons Group PLC falling 3.0% to 214.3 pence, Countrywide PLC down 2.2% to 526.00 pence and Zoopla Property Group PLC down 4.4% to 226.96 pence.
Sharing in the woes are buy-to-let lenders, with Paragon Group of Companies PLC shares falling 2.9% to 388.6 pence, Aldermore Group PLC falling 5.0% to 283.2 pence and OneSavings Bank PLC down 6.1% to 292.756 pence.
By Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance
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