Property Tax

Stamp Duty Changes

Changes imposed will see an additional 3% upon purchases of a second home, and buy-to-let properties which are above £40,000. The additional 3% stamp duty will be applied to every Stamp Duty Land Tax (SDLT) band, including previous tax-free elements. The changes will start to take effect from April 2016.

For instance, it implies that the tax bill on a buy-to-let property costing £450,000 will amount from £12,500 to £26,000.

Below is a chart provided with examples that demonstrate how these changes will be in place for buy-to-let properties and second homes.

Value of second property/buy to let(£) Current SDLT (£) SDLT from 1 April 2016 (£) Increase in tax (£)
150,000 500 5,000 4,500
250,000 2,500 10,000 7,500
350,000 7,500 18,000 10,500
450,000 12,500 26,000 13,500
500,000 15,000 30,000 15,000
1,000,000 43,750 73,750 30,000

What to expect

The increase in Stamp Duty has been criticised and renounced by many professionals and landlords because it is not beneficial. It is becoming more difficult for landlords to invest in the buy-to-let market, therefore adds more pressure on the existing gaps between supply of properties and the demands. In result, rental values could potentially surge in the market as there would be a shortage of properties available for rent. Despite this, it would be easier for countless first time buyers to finally get their own place.

Things to consider further

Buy-to-let landlords and owners of second homes must be fully aware of further changes. This is because it is not officially clarified on how SDLT changes will be implemented and analysed. This includes a clear definition of “second home”, also what actions to take if a buyer has not decided on what to do during the time of purchase. Furthermore, the meaning of second home is yet to be applied to overseas buyers who have their main property out of the country. Existing investors within buy-to-let or second homes in the UK, will be advised to carefully rethink their future returns due to recent changes in tax, also applies to those who wish to take out mortgages especially those announced in the Summer Statement. Recent changes implemented could possibly result in a fall of rental income in the following years.