Stamp Duty changes hit landlords

In a drive to supposedly support home ownership and assist first time buyers, the Chancellor of the Exchequer has imposed Stamp Duty changes that levy a 3% penalty on those purchasing a second property. These Stamp Duty changes will mainly affect buy-to-let landlords but will also impact those purchasing second properties for other reasons, perhaps as a holiday home.

This announcement of this change prompted a huge surge in property purchases in the run up to the 1st April 2016 as landlords looked to, understandably, swerve this extra charge.

Stamp Duty from 1st April 2016

The government says that for 90% of property transactions, the Stamp Duty remains the same. Therefore for the remaining 10% of property transactions an additional 3% Stamp Duty surcharge is now payable.

For second homes and buy-to-let purchases, the new Stamp Duty rates are:-

  • 3% between £0 and £125,000
  • 5% between £125,000 and £250,000
  • 8% between £250,000 and £925,000
  • 13% between £925,000 and £1,500,000
  • 15% on anything higher

As with standard Stamp Duty for residential properties, the tax is only payable on the portion of the price within each of the bands. Therefore for a property purchased at £200,000, 3% would be payable on the first £125,000, then 5% payable on the balance of £75,000, resulting in a combined Stamp Duty bill of £7,500.

 

Chancellor cuts Stamp Duty for 98% of sales

IN HIS last Autumn Statement before the General Election in 2015, the Chancellor of the Exchequer announced sweeping changes in Stamp Duty Land Tax (SDLT) that will benefit almost everyone and cost the government an estimated £4.5billion over the next 5 years. So what’s changed?

Until 4th December 2014

Stamp Duty used to be calculated based on particular value bands. This meant that properties valued between:

  • £125,001 and £250,000 would pay 1 percent
  • £250,001 and £500,000 would pay 3 percent
  • £500,001 and £1,000,000 would pay 4 percent
  • £1,000,001 and £2,000,000 would pay 5 percent

Properties valued at £125,000 or less incurred zero Stamp Duty and those valued at more than £2,000,000 would pay 7 percent.

What made these bands so unpopular is the fact that Stamp Duty rate was payable on the full amount, therefore the amount of tax payable could suddenly jump up when a property was valued over a certain threshold. For instance, a transaction at £250,000 would have incurred Stamp Duty of 1 percent, or £2,500, yet a transaction of £251,000 would have incurred Stamp Duty at 3 percent, or £7,350.

From December 4th 2014

Stamp Duty will now be incurred in what the government likes to call a “progressive” way. There are still Stamp Duty Land Tax bands, but you will only pay the applicable rate on the portion of the property value that lies within any particular band. The first £125,000 is now free of tax for all purchases. All transactions of less than £937,500 will incur less Stamp Duty than they used to.

The new bands are as follows:

  • Up to £125,000 – no Stamp Duty
  • 2 percent between £125,001 and £250,000
  • 5 percent between £250,001 and £925,000
  • 10 percent between £925,001 and £1,500,000
  • 12 percent on anything higher

The rates per band have gone up, but this should not be taken at face value because the way the tax is calculated has changed.

Example 1

Jack is a first time buyer purchasing a property at £177,000. He pays no SDLT on the first £125,000, because this is now “free”. The remaining £52,000 lies within the band at which 2 percent is charged so Jack pays 2 percent of this, or £1,040. Before the changes, Jack would have paid £1,770.

Example 2

Hillary is purchasing a property for £1,000,000. As with Jack in the previous example, she pays no SDLT on the first £125,000. As her purchase traverses 4 different SDLT bands, we have to look at the portion of the purchase that lies within each band. Hillary will pay 2 percent on everything between £125,001 and £250,000. This is £2,500. She will pay 5 percent on everything between £250,001 and £925,000. This works out at £33,750. Finally, Hillary will pay 10 percent on everything between £925,001 and £1,000,000, which is £7,500. To find the payable SDLT, simply add up the tax payable for each band, which comes to £43,750. This is £3,750 more than she would have paid under the old system.

If you require any Stamp Duty or other property advice, please contact one of our experts who will be delighted to help you.

Exemption on Stamp Duty set to end

In September last year we reported that first time buyers do not pay stamp duty when buying a property for less than £250,000.00. There are some exceptions to this, but in general terms the relief will apply if you (and your partner, if buying together) have never owned a property before.

However this exemption is set to end on 24th March 2012 unless extended by the government. So, if you have been thinking about buying and have perhaps found your ideal property, then if the price is less than £250,000 it makes sense to set the ball rolling now so that you can complete before the cut off date. Stamp duty is otherwise payable on any property purchase where the price is over £125,000 at a rate of 1%, 3% if over £250,000, 4% if over £500,000 and 5% if over £1M.