New Buy-to-Let Stamp Duty Explained.

New Stamp Duty rates for Buy to Let and Holiday Homes.

In the autumn statement the Chancellor announced significant increases in Stamp Duty on Buy to Let and Holiday Homes in England, Wales and Northern Ireland purchased after April 2016.

The current rates are,

0% up to £125,000

2% between £125,001 and £250,000

5% between £250,001 and £925,000

10% between £925,001 and £1,500,000

12% above £1,500,001.

The increase will add a flat 3% extra across the board with only a tax free area of up to £40,000 but above that you pay stamp duty on the full purchase price.

0% up to £40,000

3% above £40,000 to £125,000 on the full Purchase Price

5% between £125,001 and £250,000

8% between £250,001 and £925,000

13% between £925,001 and £1,500,000

15% above £1,500,001.

While this might not sound much it will increase the tax take on a property purchased at £275,000 from £3,750 to £12,000, over a 300% increase! The Chancellor expects to raise £1billion from the increase, with a vague pledge that some of it will be used to support First Time buyers. In reality it is an easy way of increasing tax revenues, something which all Chancellors love to do, even Conservative ones. It is a sad fact that only 2 budgets since the war have decreased the overall burden of taxation.

The only ray of sunshine in this is there are no current plans to scrap the ability to offset Stamp Duty against future Capital Gains Tax liabilities. This will potentially have a significant impact on the overall tax burden down the line, but only if the rules allowing this remain in place. Future Chancellors may decide that this will be an easy way of clawing back revenue.

The consensus of opinion is that for the first quarter of 2016 there will be a surge in demand to beat the increase, a flattening out in the second quarter with a potential small fall and recovery in the last 6 months. Matt Lloyd of Skipton Building Society is confident that the overall effect on demand will be minimal.

Leaving aside demand, other effects are potentially more pronounced, especially on Tenants. There is likely to be significant pressure on rents as Landlords seek to recover the extra costs involved at the purchase stage. While the rental market remains buoyant this is a real possibility, especially in areas of high demand and limited supply. There were taxation changes introduced last year which will also add to this pressure, and I shall deal with these in another article, but together they have made some lenders tighten up the rental calculations on which they base their lending decisions. Only a few have moved so far, but expect others to join suit. No lender wishes to be significantly out of step with their competitors as they may find themselves on the Financial Conduct Authority “watch” list!

The Scottish system, called Land and Buildings Transaction Tax, will not be effected by the changes.