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Thinking of investing in buy-to-let? You’ll pay much less Stamp Duty if you buy before April 2016...but might get a better property price after that date.

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  • What’s the latest?

    In yesterday’s Autumn Statement the Chancellor, George Osborne announced that, from 1 April 2016, a 3% loading will be added onto every Stamp Duty band for buyers of ‘additional properties’ such as second or buy-to-let homes.

    The new tax will apply to all homes costing over £40,000 – lower than the £125,000 starting threshold for residential homes. The initial 3% Stamp Duty will also be charged on the entire property price – a move reminiscent of the recently-scrapped slab style charging structure.

    So, from April 2016, a buy-to-let home costing £275,000 will incur Stamp Duty of £12,000 – up from a current £3,750.     

    The Chancellor also announced that, from 2019, Capital Gains Tax (charged at 18% or 28% depending on your band) which is applied to the profit made on the sale of any home that is not your primary residence, will need to be paid within 30 days of completion compared to the current 18 months. This is in light of the new digital tax accounts due to be up and running by then.

    Why is it happening?

    The Chancellor’s radical Stamp Duty hike is an attempt to prevent affordable homes being snapped up by much wealthier property investors, many of whom are in a stronger negotiating position as they are paying cash. He said: “Frankly, people buying a home to let should not be squeezing out families who can’t afford a home to buy.” Osborne cited London and Cornwall as example of areas where local communities are being priced out of home ownership.

    Who does is affect?

    Osborne’s tax hike announcement affects anyone who is considering buying a second or buy-to-let home in the next few months. It will have a more significant impact in areas such as London and the south east, where property prices are higher.

    The Chancellor’s Capital Gains Tax announcement will affect anyone looking to sell a second home after 2019 which is not their primary residence.

    Sounds interesting – what’s the background?

    Yesterday’s announcement was the second ‘tax blow’ to landlords in a matter of months. In his July Summer Budget, Osborne turned the screws on the amount of tax relief landlords can claim. He said that, from April 2016, landlords letting furnished properties will no longer be able to claim 10% ‘wear and tear’ costs against their tax bill. Instead they can only claim for the actual costs of any damage or repairs.

    He also announced that landlords will no longer be able to claim tax reliefs worth up to 45% of the interest payments on their buy-to-let mortgages. Instead, relief will be capped at the basic tax rate of 20%, eating further into their profits. This will be phased in over a four-year period starting from April 2017.

    "From April 2016, a buy-to-let home costing £275,000 will incur Stamp Duty of £12,000 – up from a current £3,750..."   

    Ray Bolger at mortgage broker, John Charcol, said: “As buy-to-let represents over 15% of total housing purchases, the tax changes are large enough to distort prices in an inelastic market. Buyers should be careful that any price falls after April don’t wipe out the 3% Stamp Duty saving they make by rushing to buy now.”

    Some good news for landlords is that, when it comes to selling a buy-to-let home, they can offset purchase costs – including Stamp Duty – against any Capital Gains Tax liability.

    If you become a landlord via ‘let-to-buy’ (letting out your existing home to buy a new primary residence) it is not yet clear whether you will be affected by the new Stamp Duty rules. Details will be part of a consultation published in the New Year of 2016.

    Top 3 takeaways

    • 3% loading onto every Stamp Duty band for buyers of ‘additional properties’ from 1 April, 2016
    • More stringent tax relief rules on mortgage interest from April 2017 and ‘wear and tear’ costs from April 2016
    • From 2019, Capital Gains Tax needs to be paid within a month of completion of a sale

    Update! 14 January, 2016: The government's consultation on the 3% Stamp Duty surcharge has now been published. Read our full guide to how it will work.

     

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