What are the changes to buy-to-let stamp duty?

There has been a spike in enquiries for buy-to-let mortgages from landlords who are anxious to purchase properties ahead of stamp duty changes in April 2016. 

George Osborne, the chancellor, took landlords by surprise when he proposed a stamp duty surcharge of three percentage points in 2015’s autumn statement. 

The buy-to-let market was already reeling from the chancellor’s announcement in the July 2015 Summer Budget to cut mortgage interest tax relief, which could make a serious dent in landlords’ profits. 

The government introduced both measures in an attempt to slow the relentless rise in house prices. Many commentators blame buy-to-let landlords in particular for pushing up property values and squeezing first-time buyers out of the market.  

The changes to mortgage tax relief do not come into force until April 2017. But the stamp duty hike is scheduled for April 1, 2016, and will apply to property purchases in England, Wales and Northern Ireland.

Caravans, mobile homes and house boats are not currently liable for stamp duty and nothing will change after April.

Rates of stamp duty

Landlords will in future pay the standard rates of stamp duty, plus an extra three percentage points on each band, when they purchase a buy-to-let property. 

The surcharge could add thousands of pounds to the stamp-duty bill.

Under the current regime, there is no stamp duty to pay on properties of up to £125,000. Buyers who are going to live in the property then pay: 

  • 2% on the portion of the sales price between £125,001 and £250,000; 
  • 5% between £250,001 and £925,000;
  • 10% between £925,001 and £1.5m; 
  • and 12% on anything above £1.5m.

The rates for landlords (and anyone buying a second home) will in future be 3% on the portion of the property up to £125,000, then 5%, 8%, 13% and 15% respectively for the price tiers. 

For example, anyone buying a £200,000 second home or buy-to-let property before April will pay stamp duty of £1,500: 0% on the first £125,000 and 2% on the £75,000 portion between £125,001 and £250,000.

From April, landlords and second-homers will have to pay 3% for the first £125,000 and 5% on the amount between £125,001 and £250,00, to give total bill of £7,500. 

In other words, the landlord will pay five times more than an ordinary buyer.

Surcharge liability

The surcharge applies to anyone who is buying an additional property. 

You will also have to pay the higher rate of stamp duty if the property you are buying replaces your main residence, but the main residence has not yet been sold. 

In this instance though, you can apply for a refund provided the previous main residence is sold within 36 months.

The changes will not just affect landlords. For example, they could ensnare a parent who is buying a home for a child, unless the property is bought solely in the name of the offspring. 

Couples could also be caught out. If a couple owns a property in one partner’s name and buys another in the name of the other partner, the higher rates would apply. 

The surcharge even extends to homes abroad. If you already own a home in Spain and buy an additional property in England, you will have to pay the higher rate of stamp duty. 

Corporate responsibility

Landlords cannot sidestep the new charge by setting up a limited company as it will apply to companies as well as individuals. 

The Treasury is even considering charging the higher rates of stamp duty to companies on their first purchase of a residential property. 

However, it does not want to put off some of the bigger property firms. It is therefore expected to exempt companies with more than 15 properties in their portfolio. 

Charities and registered social landlords will also continue to be excluded from the stamp duty changes.

Exempt properties

Some properties are also exempt from the surcharge – but it’s a limited number. 

Caravans, mobile homes and house boats are not currently liable for stamp duty and nothing will change after April. 

The government is also excluding all properties worth less than £40,000. Residential properties worth less than £40,000 will also be ignored when determining if an additional property is being bought. 

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