Re: Spring 2016 | Page 69

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 69