Uncategorized

Stamp Duty Land Tax – how will the hike affect me?

The Chancellor has launched a second assault on residential landlords with the announcement of a new 3% additional stamp duty rate on any property bought as a buy to let or a second home.

The Chancellor has launched a second assault on residential landlords with the announcement of a new 3% additional stamp duty rate on any property bought as a buy to let or a second home.

George Osborne has already revealed plans to phase out higher rate tax relief on buy-to-let mortgage interest from 2017 and to reduce wear and tear allowances from next April.

The decision to hike stamp duty has been described in the press as the ‘death knell’ for buy-to-let, but how will the change in legislation affect you?

Stamp Duty is paid on increasing portions of a property priced above £125,000 when you buy a house or flat.  Currently buyers pay noting on the first £125,000, 2% on the portion up to £250,000, 5% up to £925,000, 10% up to £1.5m and 12% on anything else.

Rates remain the same for standard residential buyers – but 3% extra will be added on the total price of the property if it is to be used as a buy-to-let or second home.  These buyers will not pay any Stamp Duty if the property they buy costs less than £40,000, but will pay the extra 3% on any property above £40,000, regardless of the property’s price.

This means that a first time buyer purchasing a £250,000 property will pay £2,500 in Stamp Duty, whereas a landlord will pay £10,000.  On a £350,000 property a first time buyer would pay £7,500 and a landlord £18,000.

Treasury documents released immediately after the speech implied that the first £40,000 would be tax free. But it was later confirmed that while those who buy a property below £40,000 won’t have to pay the additional 3%, for all purchases above that threshold, the 3% extra tax applies on the entire price.   The table below sets out some examples of how the changes will affect buy-to-let purchases.

House Price First Home Buy to let/Second home
£100,000 zero £3,000
£125,000 zero £3,750
£150,000 £500 £5,000
£175,000 £1,000 £6,250
£200,000 £1,500 £7,500
£250,000 £2,500 £10,000
£300,000 £5,000 £14,000
£400,000 £10,000 £22,000
£500,000 £15,000 £30,000
£750,000 £27,000 £50,000
£1m £43,750 £73,750

The figures are for England and Wales only.  Scotland has different Stamp Duty rates.

Frequently asked questions:

  • Who will be affected by the changes?

The 3% surcharge will apply to landlords buying a new property to rent and people buying second homes or holiday homes.

  • When will the change come into force?

The change will be brought in on April 1, 2016.

  • Will there be an impact on house prices?

There have been warnings that the planned changes could push up house prices in the short term as would-be landlords rush to purchase properties before the new rules come into force.  Buy-to-let accounts for 15% of all property sales, and if landlords quit the market after the April 2016 deadline they could fall once more.

  • Why does the chancellor want to increase stamp duty for buy-to-let landlords?

The chancellor claims the changes are being brought in to help first time buyers.  In his Autumn Statement George Osborne said: “People buying a home to let should not be squeezing out families who can’t afford a home to buy’.  However the increase is set to net the exchequer £625million next year.

  • Are there any exemptions?

The additional Stamp Duty will not apply to caravans, mobile homes and houseboats, or to corporate entities or funds making significant investments in residential property.

  • What happens next?

The government will consult on the policy detail, including whether an exemption for corporate entities and funds owning more than 15 residential properties is appropriate.

About the author

Sally Walmsley

Sally Walmsley

Sally Walmsley is the Communications Manager for the RLA and award-winning Editor of RPI magazine. With 16 years’ experience writing for regional and national newspapers and magazines she is responsible for producing articles for our Campaigns and News Centre, the weekly E-News newsletter and editorial content for our media partners.

She issues press releases promoting the work of the RLA and its policies and campaigns to the regional and national media and works alongside the marketing team on the association’s social media channels to build support for the RLA and its work.

10 Comments

  • What does this mean for Ltd companies whose business is to renovate properties?
    What does this mean for people who now have a BTL property but then go on to buy their own home to live in? Do they pay the increased rate?

    • The Government is set to consult on the detail of the proposal and these are all good questions that need answers.
      The RLA will keep members informed of the consultation deadlines and update you when there are any further announcements.

  • The new CGT rules from 2019 aren’t mentioned in this article. All sellers of residential property who are liable to pay CGT will have just 30 days from completion to pay the tax.

  • What happens if i am buying a second home to live in and intend to sell my first home? Would i still be hit by the higher rate?

    • I have sold my first family home and am currently living in what was a 1 bed holiday home. This is temporary , as I plan to buy another family home and subsequently sell my 1 bed holiday home. Will I then be able to claim back any tax paid and is there a time limit should such be possible?

  • What makes me angry about this is that people like me who have chosen to invest in property rather than take the chance on a commercial pension, are being penalised but not corporations or funds who own more than 15 properties. I should be so lucky to be able to afford 15 properties as my retirement fund!! The government wants us to save for our retirements so that we are not a burden on the state and then they do this?! I understand how the level of buy to let raises prices and the BoE concerns but the rises in the market is driven more buy the lack of available property to purchase.

    Surely there must be a way to allow for people like me to provision for their old age without being penalised in this manner? A registration scheme perhaps that requires you to keep the property and to invest the income? Should you default or sell early, the tax then becomes due?? This seems like a much fairer way to progress?

    Perhaps it should be funds/corporations who are paying additional tax rather than individuals so the government would be taxing from the top down rather than the bottom up??

  • Yes but isn’t the idea to seize independently owned property after they run everyone into the ground?

    The fat controllers are the only ones who are ‘entitled’ to anything. This makes it so clear. The big boys/girls can own as much as they like. But if you are trying to secure your independent income, knowing a pension is not safe, they will take it?

    Look at empty property rates. Each small landlord paying empty property rates while they have no income. If the fat cats wanted to help small businesses, little shops, communities, they would have a fairer and sensible system, such as allowing the equivalent of empty property rates to be spent on improving the property, thus making it more likely to rent or sell.

    There is no effort to help the small people. Only a concerted effort for the fat cats to help themselves.

  • Does anyone know how this will affect someone who owns their own property but now plans to buy a home with their new partner. The partner is a 1st time buyer, the property owner wants to keep her house as security for the future and plans to rent it out at below market rates to friends who are struggling to rent on the open market. Will the extra 3% have to be paid on the new house, even though it will be their only joint home and one of the owners owns no other property.

  • Someone has asked this already but not received an answer. I have several flats I rent out. But if I sell my own home and buy another to live in myself is that a second home? What is the definition of a second home please?

  • I want to remortgage a rented property to raise more funds will I have to pay the stamp duty even though im not selling it.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.