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Investors get set for stamp duty rise

New stamp duty tax will hit buy-to-let and second home investors.

Stamp duty changes planned for 2016? Over the past decade, in an era of record low interest rates, the booming buy-to-let market has enabled an army of small landlords to generate outstanding returns on their investments.

But are the good times over for landlords, following the Chancellor’s surprise
announcement in the Autumn Statement to raise stamp duty by an extra 3% for additional properties, such as buy-to-let or second homes from 1 April 2016?

With claims that the buy-to-let market has pushed up property prices and driven out first time buyers, the government has taken a very strong interest in the sector in recent years and has launched its Five Point Plan for housing. This plan aims to ‘re-focus support for housing towards low-cost home ownership for first-time buyers’ and the increase in stamp duty forms part of this overall strategy.

In another hit to landlords, a number of additional changes are on the way, with an end to the wear and tear allowance for furnished properties and the ability to offset buy-to-let mortgage interest against the rent received.

Budget to unveil final detail

So who will be affected by these changes? The proposals outline that any individual owning additional properties over £40,000 (two or more residential properties and not replacing their main residence) will have to pay the higher rates.

And what about companies? According to the government’s consultation document, ‘the higher rates will also generally apply to purchases of residential property by companies’. However there may be exemptions from this if companies have an existing portfolio of at least 15 properties.

All of these details are yet to be finalised and will be announced in the Budget on 16 March 2016.

The new higher rates will then come into effect from 1 April 2016.

Safe as houses?

As a result of the stamp duty rise, it is estimated that tax bills for landlords buying and renting in 2017 will be triple to today.

In the short term, high street banks have reported an increase in mortgage approvals in January, fuelled by investors looking to purchase buy-to-let and second homes ahead of the changes on 1 April. However the longer-term future for buy-to-let is less certain.

Will the stamp duty changes cool the buy-to-let market and offer more properties for first time buyers? Will tenants’ rents have to be increased to absorb the hikes? Or will the longer-term investment returns and current low interest rates continue to outweigh the upfront costs?

Only time will tell if the buy-to-let market will still offer individuals an investment opportunity that is as safe as houses.

If you’re a property investor, we can give you advice on the most tax efficient way to hold your rental properties following the stamp duty rises.  Call us on 01299 488860 now. 

Perrigo Consultants – Chartered Tax Advisers, Stourport

You might also like to read our Blog post about the new dividend tax.