New tax on landlords

In last year's Autumn Statement George Osborne announced that anyone buying second homes or buy-to-lets would be hit with a higher rate of stamp duty. Anyone who buys additional residential property, including second homes and buy-to-lets, will have to pay an additional 3 percentage points in stamp duty from April 1st 2016.

The extra charge applies above the current “stamp duty land tax” rates. This means there will be 3pc tax (currently zero) to pay on homes worth up to £125,000, 5pc tax (instead of 2pc) on homes that cost between £125,001 and £250,000, and 8pc (currently 5pc) on homes worth between £250,001 and £925,000. Homes worth up to £1.5m will be subject to 13pc stamp duty and those over this amount will incur a 15pc charge.

The Government will consult in the coming weeks on exactly how the tax change will apply in practice. As the rules currently stand, investors will be able to offset the additional stamp duty, along with other purchase costs, against their capital gains on the property in the future. So even though it is an unwelcome extra upfront expense, a proportion can be clawed back eventually. But beware – the Treasury could change the rules at any time. As investors tend to hold onto their properties for some years, there is large scope for further tax changes.

The chancellor has said he will consider tweaking the details of the tax before it is implemented, including making an exemption for corporations and funds owning more than 15 residential properties. This could help encourage institutions to invest in housing developments.

The change to stamp duty is supposedly designed to help ease the housing shortage by raising £3.8bn in tax and to help potential first-time buyers afford a home by squeezing demand from buy-to-let investors. But judging by the response from many experts in the property industry it is not clear how this will be achieved.

Critics claim it could have the opposite effect by increasing rents and removing a key source of funding for new housing developments. Rents could rise due to a fall in the supply of rented accommodation and landlords looking to offset their stamp duty bill by raising their charges, while the supply of homes to buy could fall as investors who fund new developments are put off by the tax hike.

These factors could make it more difficult for potential homebuyers to save the funds to buy a home and mean that house prices continue to rise due to a lack of supply. Commenting on the Chancellor’s announcement on increased stamp duty land tax (SDLT) on buy to let property purchases, Richard Lambert, CEO at the National Landlords Association, said: “The Chancellor’s political intention is crystal clear; he wants to choke off future investment in private properties to rent. The exemption for corporate investment makes this effectively an attack on the small private landlords who responded to the housing crisis by putting their own money into providing homes by the party that they put their faith in at the election. If it’s the Chancellor’s intention to completely eradicate buy to let in the UK then it’s a mystery to us why he doesn’t just come out and say so”.

Parkinson Property

5th January 2016


The Property Ombudsman Lettings   Find details of all our properties at - The UK's number one property website   The Deposit Protection Service