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|
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.