The government has put in place an increase in Stamp Duty Land Tax (SDLT) from April 2016 for homeowners buying a second property. This is an attempt to make more housing available for buyers but could result in a significant surcharge for some landlords making buy-to-let purchases. We’ve also put together the some information on the increase, giving you a full understanding of what they are and how they could affect you.
What is Stamp Duty Land Tax?
SDLT is a lump-sum tax that is applied to a purchase of a property or land costing more than a set amount. Depending on the price of the property, this lump sum can vary. Currently the residential rate of SDLT is 0% for property valued less than £125k.
What are the changes?
The current residential rate of Stamp Duty Land Tax for property in the £0 - £125k band is 0%. However, any buyers purchasing additional properties in England, Wales and Northern Ireland will have to pay an additional 3% on each stamp duty band. This would mean that from April, a property bought for £125k would also come with an extra £3,750 in SDLT.
If you are a landlord with a large portfolio and own fifteen properties or more, you will be exempt from this tax and these changes will not apply to your purchase.
You also may avoid the increased charges if the second property you have purchased will not complete until after April.
How can you calculate your SDLT rate?
The table below details the new Stamp Duty rates for each band, allowing you to calculate exactly how much SDLT will be added to your purchase.
|
Band |
New additional property SDLT rates |
|
£0 - £125k |
3% |
|
£125k - £250k |
5% |
|
£250k - £925k |
8% |
|
£925k - £1.5m |
13% |
|
£1.5m + |
15% |
For those of you making a purchase of a property that is valued in one of the higher tax bands, you must remember that these charges will apply across all bands. An example for this would be a property valued at £500,000, if you were to buy a property at this price you would you pay:
3% on £0 – £125k = £3,750
5% on £125k - £250k = £6,250
8% on £250k - £925k = £20,000
Meaning a total of £30,000 in SDLT
How could this affect the property market?
It’s tough to predict how the market will react to these changes but some economists think it could have quite an affect on the property market. A few experts see the construction of new homes slowing down with it being a less attractive investment. However, the more worrying potential outcome would be rent prices rising as landlords try to pass on the extra cost to tenants. With these changes coming into place so soon, we could also see a big rush to buy before the April deadline, which would push prices higher and possibly price first-time-buyers out of the market.
What should you do?
If you want to ensure you have all the necessary information before making a Buy to Let purchase or you’re looking for help managing your investments, David Conway & Co can help. Call us today on 020 8422 5222.
