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Autumn Statement 2015 trebles stamp duty bill on a £275k buy-to-let

  • Stamp duty surcharge of 3% added to buy-to-let and second homes
  • Bill for a £275,000 property to rocket from £3,750 to £12,000
  • Described as ‘catastrophic for the private rented sector’ by lettings expert
  • Warning of rush of buy-to-let and second home purchases before April 

Lee Boyce for Thisismoney.co.uk

Chancellor George Osborne landed buy-to-let landlords another shock by announcing a 3 per cent stamp duty surcharge on property purchases from 1 April 2016.

The addition of a 3 per cent extra charge for buy-to-let and second homes on all stamp duty bands above a £40,000 starting level will more than treble the bill for buying a £275,000 home – hiking it from £3,750 to £12,000.

Delivering his Autumn Statement, Osborne said: ‘Frankly, people buying a home to let should not be squeezing out families who can’t afford a home to buy. So I am introducing new rates of stamp duty that will be three per cent higher on the purchase of additional properties like buy-to-lets and second homes.’

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Shock move: George Osborne dramatically hiked stamp duty for buy-to-let and second homes today

Shock move: George Osborne dramatically hiked stamp duty for buy-to-let and second homes today

Property experts have warned that the move could distort the housing market, with a rush of buy-to-let and second home purchases before the start of April.

It was described as ‘catastrophic news for the private rental sector’ by David Cox, the head of the Association of Residential Letting Agents.

The new surcharge on stamp duty for landlords and those buying second homes will raise £1billion for Treasury by 2021, Mr Osborne claimed.

He added: ‘It will be introduced from April next year and we’ll consult on the details so that corporate property development isn’t affected.

‘This extra stamp duty raises almost a billion pounds by 2021 – and we’ll reinvest some of that money in local communities in London and places like Cornwall which are being priced out of home ownership.’

How the stamp duty charge on buy-to-let and second homes will hit 

Higher rates of stamp duty will be charged on purchases of additional residential properties, such as buy-to-let properties and second homes, with effect from 1 April 2016.

WHAT STAMP DUTY MEANS FOR LANDLORDS BUYING £275k HOME

Currently, buyers pay no stamp duty on the first £125,000, then 2 per cent on £125,000 to £250,000 and 5 per cent above £250,000 to £500,000, rates continue to step up above this.

For those buying a buy-to-let property or second home, stamp duty will now be 3 per cent on homes between £40,000 and £125,000, 5 per cent to £250,000 and 8 per cent to £500,000. 

For those snapping up a £275,000 home, the current rate of stamp duty means a £3,750 stamp duty bill.

This is worked out by:

0% on the first £125,000 = £0

2% on the next £125,000 = £2,500

5% on the final £25,000 = £1,250

Total SDLT = £3,750

But adding the 3 per cent surcharge will see the price of the tax rocket for landlords.

3% on the first £125,000 = £3,750

5% on the next £125,000 = £6,250

8% on the final £25,000 = £2,000

Total SDLT = £12,000 

The higher rates will be 3 percentage points above the current SDLT rates. The Chancellor said that the tax receipts will help towards doubling the affordable housing budget – and will help first time buyers.

The higher stamp duty will be charged on purchases of additional residential properties above £40,000. It will see 3 percentage points added to very band – including the previously tax-free element.

It comes as the buy-to-let boom has been looked at closely by the Bank of England in the last year.

Paragon – one of the largest specialist lenders – yesterday revealed buy-to-let lending was up 102 per cent in the last months.

The higher rates will not apply to purchases of caravans, mobile homes or houseboats, or to corporates or funds making significant investments in residential property given the role of this investment in supporting the government’s housing agenda.

The Government will consult on the policy detail, including on whether an exemption for corporates and funds owning more than 15 residential properties is appropriate.

Stuart Gregory, a mortgage expert, said on social media website Twitter: ‘Osborne just killed buy-to-let.’

Robert Pullen, tax manager, at Blick Rothenberg LLP said: ‘Buy-to-Let purchases from April 2016 will suffer an additional three per cent stamp duty.

‘This is likely to cause initial spike in house prices as investors rush to buy, but the long term impacts are not known. It could result in even larger rent costs as landlords seek to recover the new tax.’

HOW STAMP DUTY WILL CHANGE FOR LANDLORDS FROM APRIL 2016
House price Stamp duty today Stamp duty April 2016 Difference
£150,000 £500 £5,000 £4,500
£200,000 £1,500 £7,500 £6,000
£250,000 £2,500 £10,000 £7,500
£300,000 £5,000 £14,000 £9,000
£500,000 £15,000 £30,000 £15,000

Michael Wistow, head of tax, Berwin Leighton Paisner, said: ‘To solve the housing crisis, the UK needs more houses to buy and more houses to rent.

‘Increasing stamp duty on certain classes of investors in buy-to-let is distortive and appears counter intuitive and will only restrict supply.’

Boom time: Buy-to-let purchase mortgages have risen sharply. The chart above uses six-monthly data from the CML and extrapolates a figure for the whole of 2015 with the fourth quarter matching the third quarter

Boom time: Buy-to-let purchase mortgages have risen sharply. The chart above uses six-monthly data from the CML and extrapolates a figure for the whole of 2015 with the fourth quarter matching the third quarter

The property and buy-to-let industry have reacted with shock to the news of the buy-to-let tax hike. 

David Cox, managing director, of the Association of Residential Letting Agents, said: ‘The news in today’s Autumn Statement that the Chancellor will increase stamp duty tax on buy-to-let properties by three per cent in April 2016 is catastrophic news for the private rental sector, especially following the recent changes to mortgage interest tax relief and the annual wear and tear allowance. 

‘Increasing tax for landlords will increase rents and reduce property standards for tenants.’ 

Landlord shock: The Chancellor announced in his Autumn Statement that landlords will face a 3% surcharge on stamp duty

Landlord shock: The Chancellor announced in his Autumn Statement that landlords will face a 3% surcharge on stamp duty

Last December, the Chancellor made huge changes to stamp duty bands. It meant stamp duty on a £275,000 property fell from £8,250 to £3,750.

The changes today will still add thousands of pounds to the ‘old style’ stamp duty system, seen pre-December 2014.   

The latest bombshell for investors comes after George Osborne announced a crack down on mortgage interest tax relief in his summer Budget.

The amount landlords can claim as relief will be set at the basic rate of tax – currently 20 per cent.

This change will be phased in over a four-year period from April 2017. Currently, landlords can claim tax relief on monthly interest repayments at the top level of tax they pay of 45 per cent.

Mortgage interest relief is estimated to cost £6.3billion a year, a Freedom for Information request revealed. 

*Originally, this article wrongly undercooked the new stamp duty figures slightly after a mix-up with the Treasury. It said stamp duty on a £275k home would be £10,800 from April – instead of £12,000.

SAVE MONEY ON BUY-TO-LET

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