Buy-to-let and
second homes
Stamp Duty 2016
Changes were announced in the 2015 Autumn statement that
from 1st April 2016, property buyers in England and Wales will
have to pay an additional 3% on each Stamp Duty band on buyto-let and second home Stamp Duty tax bands
Buy-to-let/second home rate (April 2016)
Up to £125,000 = 3%
£125,000 - £250,000 = 5%
£250,000 - £925,000 = 8%
£925,000 - £1.5m = 13%
Over £1.5m = 15%
These changes will affect all property
transactions completing after 1st April
2016, however the final details are yet to
be revealed. A new £40,000 threshold
will also be introduced to capture the
majority of transactions
Anyone who purchases a property in
addition to their main residence will
be liable for the surcharge even if the
property is not let out.
According to the Guardian, landlords are
in shock after a second huge tax assault
on buy to let by the chancellor which will
force investors to pay thousands more in
stamp duty on new properties – on top of
the loss of tax reliefs unveiled in July.
A new 3% additional stamp duty rate on
any property bought as a buy to let or
as a second home, will see the tax on
a £175,000 purchase jump sixfold from
£1,000 to £6,250. For someone buying in
London, say a two-bed flat for £400,000,
the stamp duty rises from £10,000 to
£22,000.
Not only will prospective landlords
have to pay far more than conventional
residential buyers, they also face much
heavier taxes on their profits. The
maximum tax relief will drop from 45%
and 40% to just 20%, so that an investor
with a £150,000 buy-to-let mortgage on
a property worth £200,000 is likely to
see their net annual profit collapse from
£2,160 a year to just £960.
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.
Before 2014 a ‘slab structure’ was in
place with buyers paying a rate based
on the entire property purchase price.
The new rates are now payable only on
the portion of a property price which
falls within each band. As with every
tax, there are those who will be better
and worse off compared to the previous
system.
The economic and political problem, as
the government sees it, is that the rise
of private landlordism has crowded out
home owners, especially the fabled firsttime buyers.
“The government is very motivated to
reverse the trend in owner-occupation this is now a very important part of the
government’s housing strategy,” says
Simon Rubinsohn, chief economist at the
Royal Institution of Chartered Surveyors
(Rics).
“Buy-to-let landlords have had a very
good run - holding property has been
a very lucrative investment, so if the
government has to squeeze the buy-tolet landlord it will take that in its stride.”
“Many landlords are finding this is a
rather frightening prospect and are
talking of giving up as a result,” he says.
The Council of Mortgage Lenders (CML)
forecasts that the number of new loans
made to landlords will now fall sharply, from
116,000 in 2015 to just 90,000 in 2017.
Will mortgage rates rise at last?
It is almost seven years since the Bank
of England slashed interest rates to a
record low of just 0.5%.
That was the end point of a series of
emergency cuts, designed to stave off
financial armageddon in the wake of the
great banking crisis.
Since then most economists have
persistently forecast that rates would
start rising again, probably within 18
months. Every year these forecasts
have been wrong, so will 2016 be any
different?
For its part, the Bank of England
continues to sit on the fence, effectively
saying “wait and see”.
Most independent economists think the
first UK rate rises since July 2007 will at
last happen this coming year, and by two
increments of 0.25% each.
One forecaster, Ed Stansfield at Capital
Economics, explains why: “The economy
is probably a little bit healthier than
the collective wisdom of the Bank’s
Monetary Policy Committee thinks.”
“We think that one of the things that will
convince the Bank to act is continued
signs that incomes are recovering.”
And that growth in incomes will help
avoid a collective shudder going through
the country if rates do indeed rise by,
say, 0.5%.
As a ready-reckoner from the CML
points out, such an increase in mortgage
rates, for someone with a £100,000 loan
currently charged at 3.22%, would add
just £26 to their monthly outgoings.
By Claire Seymour
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