Changes in Stamp Duty

How do the changes in Stamp Duty affect landlords and property investors?

In the 2015 Autumn Statement, the Chancellor of the Exchequer announced a surcharge on Stamp Duty Land Tax (SDLT) for second homes in an attempt to double the affordable housing budget. As a landlord or property investor looking to acquire additional properties, this will mean increased costs. Here is a brief outline of what you need to know.

What are the changes?

From 1st April 2016, any purchase of an additional property valued above £40,000 will be subject to a 3% Stamp Duty Land Tax surcharge over and above the current rates of tax. This will be calculated using the following bands:

Property Sale Value

Current Rate

Rates including the surcharge

£0 - £125,000

0%

3%

£125,000 - £250,000

2%

5%

£250,000 - £925,000

5%

8%

£925,000 - £1.5 million

10%

13%

Above £1.5 million

12%

15%

 

How will this look?

Whereas the current rates of tax are charged on a tiered basis, with only sums above a certain threshold being taxable, the new surcharge will apply to the whole purchase price.

Imagine you are buying an investment property for £150,000 and you are completing in March 2016. You will currently pay no tax on the first £125,000 and 2% on everything above the £125,000 figure. This will result in a Stamp Duty payment of £500.00

If you were purchasing that same property, but complete in April 2016, you will be liable to pay the £500.00 as outlined above, with an additional surcharge of 3% of the entire value. In other words, you will be given a Stamp Duty Land Tax bill of £5,000, comprised of the original rate plus the additional 3% surcharge of the entire value of the property.

Before you buy, it’s worth considering the expected increase in demand for buy-to-let suitable housing prior to this April 1st deadline, and how this may inflate prices in the lead up to the changes. Because of this, you could find that the overall cost of buying the house is similar, regardless of the increase in SDLT.

For further information and to view the Government’s Policy Design, you can visit the consultation website here.

Joseph Wood

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