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Stamp duty changes for 2016

SEE UPDATE POSTED 12 JANUARY 2016

The joys of the Autumn Statement… Last year there was good news for buyers of residential property in that from 4 December 2014 the ‘slab system’ of stamp duty (SDLT) taxation was replaced with a ‘progressive’ one. This had been long campaigned for and dealt with the inequities in the tax, and the distortions it caused in the property market. It was however unexpected.

This year’s statement included further changes which were equally unexpected, and the first question was,  would this sound the  ‘death-knell’  for the buy to let market? The changes however will not just affect existing or new landlords, but anyone who for whatever reason, may wish to own more than one property.

So what are the changes? The details that have been announced are brief and a consultation is to take place before more will be known. However the key points are understood to be as follows:

1. An increased SDLT rate is to apply for the purchase of additional residential property.

2. This increased rate of tax applies to purchase transactions where completion takes place on or after 1 April 2016 unless contracts were exchanged on or before 26 November 2015

3. It is the acquisition of a second property which will result in the charge, and the purpose for which it is to be used is not relevant. It does not matter if it is to be for the buyer’s own occupation, or to be let, or as a second home. The higher rate applies if the buyer already owns property. Therefore for example, ‘let to buy’ buyers will be caught by the higher rate on their new purchase as they will own 2 properties.

4. Buyers who buy before selling will pay the higher rate on their purchase but can claim a refund if their sale then completes within 18 months

5. Exclusions will apply to company or fund purchasers that make ‘significant investments’ in residential property. This is yet undefined with 15 properties the suggested benchmark. Excluded also are acquisitions of caravans, mobile homes or houseboats.

6. Foreign investors and people not domiciled in the UK will be treated in exactly the same way as UK residents. If buyers own another property anywhere else in the world and are purchasing an additional property in England, Wales or Northern Ireland they will be charged under the new rates.

7. No tax is payable where the purchase price is £40,000 or under.

8. Where the purchase price is over £40,000 the whole of the purchase price is subject to tax at a progressive rate. The new additional rate is charged at 3% over and above the charge which currently applies to each band. That is the charge would be the tax charged at the current rate plus 3% on the whole of the purchase price.

9. The rates are as follows:

Property or lease premium or transfer valueExisting SDLT rateNew additional SDLT rate
Up to £125,000Zero3%
The next £125,000 (the portion from £125,001 to £250,000)2%5%
The next £675,000 (the portion from £250,001 to £925,000)5%8%
The next £575,000 (the portion from £925,001 to £1.5 million)10%13%
The remaining amount (the portion above £1.5 million)12%15%

10. As an example. On a purchase of a house for £275,000, the SDLT payable is calculated as follows for the existing SDLT rate:

    • 0% on the first £125,000 = £0
    • 2% on the next £125,000 = £2,500
    • 5% on the final £25,000 = £1,250
  • Total SDLT = £3,750

On the purchase of a 2nd house  from 1.4.16 for £275,000, the SDLT payable is calculated as follows for the new additional SDLT rate:

    • 0%+ 3% on the first £125,000 = £0 +£3,750
    • 2%+ 3% on the next £125,000 = £2,500 +£3,750
    • 5% + 3% on the final £25,000 = £1,250 +£750
  • Total SDLT = £12,000

Will this cool the buy to let market in favour of a first time buyer? Up to 4 December 2014 when the rate was changed, the charge in the above example would have been £8,250, and these levels of cost did not deter the market. We have however already seen cases of clients’ withdrawing from purchases where the price could not be re-negotiated to take account of the additional cost.

Almost certainly there will be trouble ahead, with buyers looking at ways to circumvent the additional charge. The timing of the increase will also be extremely challenging coinciding as it will with Easter which in current times has taken over from Christmas as the busiest time of the year for conveyancers.

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