Stamp Duty changes: What you need to know
From 1 April, anyone purchasing additional property in England, Wales and Northern Ireland will have to pay an extra 3% Stamp Duty charge. First announced by Chancellor George Osborne in 2015, the new changes were confirmed in the recent Budget and apply to both individual investors and property companies, regardless of how many properties they own. To help you make sense of the changes and to make sure you don’t get stung with an unexpected bill, Your Move has prepared a quick guide to the new surcharge.
The buy-to-let market has been a bone of contention for many in the property industry over the years, with critics putting the blame on landlords for inflating housing prices and keeping first-time buyers off the property ladder.
New changes to Stamp Duty, introduced on 1 April, are aimed at combating this problem by curbing residential property investment and boosting the number of owner-occupiers.
Chancellor George Osborne says that £60 million of receipts from his increased Stamp Duty charges will be put towards community housing trust projects in areas where the lack of affordable housing has had the most damaging effect.
The new measures follow on from the recent restrictions on mortgage interest for residential buy-to-let property and changes to the taxation of properties held via companies.
What is Stamp Duty?
Stamp Duty, or Stamp Duty Land Tax (SDLT), to give it its full title, is a lump-sum tax that must be paid when you buy property or land over a certain price in England, Wales and Northern Ireland. Stamp Duty no longer applies in Scotland as it is now referred to as the Land and Buildings Transaction Tax (LBTT).
In years gone by, you would simply pay 1% on the total of any property worth £125,000 or more. However, as of December 2014, Stamp Duty is charged at different rates depending on the purchase price that falls into each tax band.
For example, if you buy a house for £200,000 you’ll pay nothing on the first £125,000 and 2% on the remaining £75,000. This means you would pay a total of £1,500 in Stamp Duty.
What has changed?
From 1 April 2016, anyone buying additional property above £40,000, be it a second home or buy-to-let property, will have to pay an extra 3% on top of the standard Stamp Duty rate.
If the new property you are buying directly replaces your main home, you will not be liable for the extra 3% surcharge, even if you own an additional property at the same time.
However, if you move out of your main residence (property one) but keep it and buy another main residence (property two), you will have to pay the higher Stamp Duty surcharge initially. If you sell property one within a 36-month period of completing the purchase of property two, HMRC will allow for a full refund.
George Osborne also announced in his March Budget that plans for special exemptions for ‘significant investors’ who buy 15 properties or more have been shelved.
This latest move means a loophole which could have seen buy-to-let investors joining together to buy multiple properties through a company to avoid the extra tax, has been firmly closed.
How the new surcharge works
In essence, the new 3% increase will work as a slab tax, meaning the extra 3% will apply to the entire purchase price.
For example, if you buy an additional property for £200,000 after 1 April you will pay £6,000 on top of the standard SDLT, taking the total Stamp Duty payable on the property to £7,500.
It’s important to note that the new surcharge does not apply to caravans, mobile homes, lodges or houseboats.
What do the changes mean for Liverpool?
Aside from the impact on individuals, the new changes could also have a significant impact on Liverpool’s property market.
Some fear that higher costs for buy-to-let landlords could drive away investment in the city and lead to a shortage in readily available rented accommodation and an increase in rent prices.
“It’s of concern that the new Stamp Duty levy could see the flow of landlords wilt and the supply of rental property decline,” says Nathan Penn, regional operations manager for Reeds Rains. “With less properties then available to rent, it’s inevitable, as has already been seen, that rents will increase.
“In our latest buy-to-let index we reported that rents in the North West have risen by 2.5% over the year to the end of February.
“The knock-on effect is that, if house prices also rise, many tenants may find it even harder to save for a deposit to buy – hindering their chances of becoming homeowners even further.
“Ultimately, supply is the key issue and until more properties come to market and more are built, we can only see that situation worsening – with the Stamp Duty levy doing little to help.”
Dan Pennington, director at Century 21, takes a slightly more upbeat view of the changes.
“Of course the increased SDLT will have some impact,” he says. “We have had a flurry of buy-to-let investors purchase over the last three months, but in the grand scheme of things I don’t think it will stop investors purchasing.
“Ultimately, the Liverpool property market is strong at present and investors still want to be a part of this.
“They may squeeze on price more due to the fees and certainly look to raise rents a little to claw back the tax paid but ultimately, after a few months it will be the norm and I don’t see the increased SDLT fee having a long term effect on the buy-to-let market in Liverpool.”
The full details of George Osborne’s pledge to use receipts from the new Stamp Duty charges to support community housing trusts are yet to be fully revealed.
A recent report by the Home Builders Federation found that house building on Merseyside is “well below the levels that it needs to be”.
The report states that during 2015, 400 new affordable homes were built on Merseyside but that “output is still some way off what is required”. To reach the required levels the report suggests that an extra 320 affordable houses need to be built each year across the region.
It’s unclear at this time which towns and cities will benefit from the £60m boost in community housing funding promised by the Chancellor and we will have to wait and see if Merseyside is one area which is to profit from the new measures.