20 June 2016 by Lizzie Greenway
This month sees the introduction of the new stamp duty on second homes in Wales, England and Northern Ireland, but what does it really mean for buyers and what are the implications of this new bill?
For those looking to buy-to-let the implications are substantial, it could add thousands of pounds to property transactions now, the extra 3% stamp duty seeks to push out investors looking to buy-to-let and allow first time buyers the opportunity to purchase homes. Historically buy-to-let investors have been blamed for sending property prices rocketing and therefore preventing people getting on the property ladder.
The new stamp duty is set to raise £1 billion for the Treasury in the next five years. The stamp duty will raise 3% in every band, so those purchasing a second property worth between £125,000 and £250,000 will now pay 5% instead of the original 2% charge. So if a buy-to-let investor were to buy a property for £184,000, the main purchase cost, they will have to pay an extra £5,520 as of this month.
Landlords are not pleased, believing it will halt investment in the rental market.
Currently landlords with over 15 properties are exempt from this new stamp duty, although as the budget announced on March 16th suggests this is not the long-term plan of the government. Currently those who own a substantial amount of properties, but not over 15, will still have to pay the levy.
The Chief Executive of the National Landlords Association, Richard Lambert, believes “The chancellor’s political intention is crystal clear; he wants to choke off future investment in private properties to rent.” Experts have been predicting since the Autumn Statement was released that the increased tax bill in those who own second homes to rent will eradicate any profit they look set to make and therefore may trigger a mass exodus from the market.
Last July saw landlord’s interests further curtailed, when it was announced that you could not offset mortgage interest against rental income, this change will come into existence between 2017 and 2020. In turn this may make buy-to-let actually unprofitable in some cases.
The budget did announce there would be a cut in Capital Gains Tax, from 18% to 10% for basic rate taxpayers and from 28% to 20% for high rate taxpayers. However this cut will not apply to residential properties, again further “directly attacking landlords” stated David Cox, the Managing Director of the Association of Residential Letting Agents.
Those who let their residential properties out on a short-term basis through house sharing sites such as Airbnb have been afforded an annual £1,000 tax break. In research published in March by residential specialist JLL, it was found that private landlords could actually earn more using such a service, with rentals in London around £100 more a week on sites such as Airbnb. There were 25,357 homes listed on Airbnb in London by the end of 2015, making it the city with the third highest listings in the world, just behind New York and Paris. However it is only an option for those renting for up to 90-days a year, after this period it is considered illegal in the UK.
To date since the announcement that the 3% stamp duty was coming into force in April the ARLA reported that there was an immediate, noticeable increase in house sales, with landlords looking to avoid the increased tax bill. However Mr Cox notes that after this month “we’re likely to see the number of buy-to-let properties on the market begin to decrease, and this will most certainly have a detrimental effect on renters across the country.”
An ARLA survey suggests that many believe the stamp duty will contribute to higher rental prices as landlords will no longer make as much profit they will be pushed out the market, resulting in a decrease of properties for those looking to rent. Consequently having a detrimental affect on those seeking to rent as well as landlords.
The 3% charge will not however apply to low cost housings, those that cost below £40,000 or on mobile homes, caravans or houseboats. The 3% stamp duty does not apply to houses that are inherited, although if you then go on to purchase an additional property to the one you inherited you will be affected by the surcharge, as it will be considered a second home, even though you did not buy the first one.
Lawrence Hall from Zoopla, expresses the views held by many that “the stamp duty on buy-to-let properties will ultimately make renting more expensive- which in turn eats into people’s ability to save towards a deposit.” It looks like the governments new stamp duty may in fact cause further problems for those looking to get on the property ladder, ultimately the opposite of what it hoped to achieve.
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