Stamp Duty Hike on Buy to Let & Second Homes
WHAT CHANGES HAVE THE GOVERNMENT MADE?
In 2015 the government announced changes to property tax that will affect landlords.
Three changes were made:
- The new hike in Stamp Duty (SD)
- The scrapping of wear & tear allowance
- The restriction of mortgage interest relief
STAMP DUTY HIKES
In this post we will discuss the most recent change announced by Mr Osborne in the 2015 Autumn Statement - the hike in Stamp Duty Land Tax (SDLT): Stamp Duty has risen by 3% for rental properties and second homes.
WHO is AFFECTED?
Most persons purchasing property other than their main residence.
We were recently asked the question as to whether these rules will apply to HMOs (Houses in Multiple Occupation). We posed this question to the Secretary of the National HMO Network. We were advised that "the new rules will apply to HMOs as the treasury is yet to publish guidance on exemptions".
SO, IS THIS THE FINAL NAIL IN THE COFFIN FOR THE BUY TO LET MARKET?
Maybe in the short term... but judging by our clients' property acquisition plans we don't think this change is likely to kill off property investment in the long term.
How do the SDLT Rises work?
Previously buyers paid no stamp duty on the first £125,000 of a property’s price.
However, since the reforms came in (on 1 April 2016), buy-to-let buyers have to pay an extra 3 per cent on each band. Whilst properties up to £40,000 are exempt from stamp duty, properties between £40,000.01 and £125,000 are charged stamp duty on the full purchase price.
For the average buy-to-let property, which costs £184,000, it’ll mean a fivefold increase in stamp duty from £1,180 to £6,700. For a a £600k property, this will mean an extra £18k to pay!
PURCHASE PRICE Current Stamp Duty Rate* New SD Rate for Additional Properties*
Up to £125,000 0% 3%**
£125,000.01 - £250,000 2% 5%
£250,000.01 - £925,000 5% 8%
£925,000.01 - £1,500,000 10% 13%
£1,500,000.01+ 12% 15%
* Rate applies to that portion of the purchase price
** Properties up to £40,000 are exempt from stamp duty. Properties between £40,000.01 & £125,000 will be charged stamp duty on the full purchase price.
There is a silver lining: there are exemptions to the Chancellor’s proposals.
Residential properties with a purchase price below £40,000.
Those investing in a house boat, caravan or mobile home will be exempt from the stamp duty increases.
WHAT TO EXPECT...
Prior to April, the stamp duty changes boosted the housing market as buy-to-let landlords and holiday home buyers tried to beat the deadline before the changes took place in April. This inevitably pushed up property prices in the short term, especially in locations popular with buy-to-let investors, such as London.
However, the move is and will likely continue to dampen demand and prices for second homes over the coming months, although we think demand is likely to return to the norm in the long-term.
With the initial rise in property prices, followed by the recent fall in demand and prices for property over the last few months – it is important that you make a plan of your timing for buying and selling property over the next few years.
As we said, we may see a fall in demand for property over the next months or even years - so you may want to look at the timing of buying and selling property. This essentially means putting together a plan pretty soon!
If you need any help in understanding the Stamp Duty tax implications on your property portfolio just get in touch here!