December 7, 2015

Changes in Stamp Duty

This post was written by: Francesca Shaw

Changes in stamp duty

George Osborne, in the Autumn Statement, announced a 3% surcharge on stamp duty land tax (SDLT) for people buying a second home or a buy-to-let.

The increase in stamp duty, coming into effect from April 2016, is aimed to help first time buyers who are currently squeezed out of the market. George Osbourne saying: “People buying a home to let should not be squeezing out families who can’t afford a home to buy.” However, in the short term houses could become even less affordable as perspective buy-to-let owners try to beat the stamp duty increases.

Currently the Stamp Duty on property (for both standard residential buyers and buy-to-lets/second homes) is:

  • 0% between £0 and £125,000
  • 2% between £125,001 and £250,000
  • 5% between £250,001 and £925,000
  • 10% between £925,001 and £1.5m
  • 12% for the portion above £1.5m

Come April 2016 the stamp duty for first time buyers will remain the same, however a 3% increase will occur for buy-to-lets and second homes. Currently, someone purchasing a buy-to-let property for £250,000 will pay £2,500 in stamp duty, after April 2016 they will pay £10,000.

For aspiring buy-to-let owners the Autumn Statement not only had a negative effect on the amount they would have to pay for the property, but it also has a negative effect on their potential profits. The maximum tax relief for buy-to-let owners will fall from 40/45% to just 20%. Potentially, this will slash the profits of buy-to-let owners and may even leave many making a loss.

This is not the first time that the chancellor has changed stamp duty in the UK. In his 2014 Autumn Statement he replaced the ‘slab system’ of stamp duty, where you would pay a single percentage rate on the whole price of the property, with a more progressive system.

Critics of the stamp duty increases argue there are simple ways around it.  They suggest that people will put second homes in the name of their children or their un-married partners to avoid the extra fees. For example, couples could get two homes and avoid the extra tax by highlighting their differing second names. A Financial Times article said: “Couples who aren’t married might well get away with it.”

Overall, the stamp duty increases creates a juxtaposition of being both beneficial and detrimental to different sections of society. For first time buyers housing will potentially become more affordable. For those purchasing buy-to-lets or second homes the prices of properties will soar and potential profits plummet.

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