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January 19, 2016
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Stamp Duty Increase For Second Homes

From 1 April 2016, it is proposed that an additional 3% Stamp Duty Land Tax (SDLT) charge will be introduced on properties purchased as a buy-to-let or as a second home.

The higher rates of SDLT will be charged on purchases of additional residential properties costing over £40,000.

SDLT Increases

*Properties up to £40,000 do not require a tax return to be filed and are exempt from SDLT. Properties between £40,000 and £125,000 are charged SDLT on the full purchase price.

Where a new main residence is purchased prior to the old one being sold, the higher rates of SDLT will be chargeable, but the buyer will be entitled to claim a refund provided that the old home is sold within 18 months.

Married couples and civil partners will be treated as one unit and may only own one main residence between them for the purposes of the additional rate.

Overseas buyers will may also be hit by the charge. Where an individual living overseas owns a property and wishes to purchase an additional property in the UK, that UK property will be liable to the higher rate.

HMRC Guidance states that the higher rates will also generally apply to purchases of property as furnished holiday lets and by companies. However, corporates and pension schemes who have an existing residential portfolio of at least 15 properties are unlikely to be affected. It should be noted that this will not be confirmed until the Budget is published on 16 March 2016.

In addition to these new SDLT rates, from April 2016 the amount that buy-to-let landlords can deduct for mortgage interest payments from their rental profits will be cut. Please see our blog for further details.

These changes have been introduced to make buy-to-lets less attractive to landlords, and therefore support aspirational first-time buyers of property who are struggling to get on the housing ladder.

Examples

A buy-to-let landlord looking to purchase a rental property valued at £275,000 would be charged SDLT as follows:

Current Rules

  • £125,000 x 0% =      £0
  • £125,000 x 2% =      £2,500
  • £25,000 x 5% =        £1,250
    ...............................£3,750

New Rules

  • £125,000 x 3% = £3,750
  • £125,000 x 5% = £6,250
  • £25,000 x 8% =   £2,000
    ..........................£12,000

Therefore, under the new rules, the landlord would be liable to pay an additional £8,250 in SDLT.

Contact us today to discuss your tax requirements.
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