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Buy to let properties face increased stamp duty

Buy to let properties face increased stamp duty

Written by: Category: Landlords November 28, 2015

Buy to let investors and people buying second homes will soon have to pay more in stamp duty, the chancellor has announced.

In what was the first Autumn Statement of the current Conservative government there were many major talking points including the imminent changes to stamp duty. From April 2016, those in England and Wales will have to pay a 3% surcharge on each stamp duty band when purchasing buy-to-let properties or second homes.

Mr Osborne said the new surcharge would raise an extra £1bn for the Treasury by 2021.

Many landlords reacted angrily to the change, suggesting it would suppress investment in rental properties. The stamp duty surcharge will lift each band by 3%. That means that for properties worth less than £125,000, which were previously stamp duty exempt, landlords will now have to pay 3%. And for properties worth between £125,000 and £250,000 landlords will now have to pay 5% instead of the 2% paid previously.

For the average buy-to-let purchase price of £184,000, an extra £5,520 will be payable from April 2016. Commercial property investors, with a portfolio greater then 15 properties, are expected to be exempt from the new charges.

Another reason why we are expecting a very busy start to 2016.

Question and Answers

Who is affected?

Those buying a buy-to-let property or a second home will face higher stamp duty tax bills.

What are the changes?

Under new rules, 3 per cent will be added to every single stamp duty band for buy-to-let and second homes – including the previously tax-free element.

For those snapping up a £275,000 home, the current rate of stamp duty means a £3,750 stamp duty bill. This is worked out by:

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

Total Stamp Duty = £3,750

But adding the 3% surcharge we will see the price of the tax rocket for landlords.

  • 3% on the first £125,000 = £3,750
  • 5% on the next £125,000 = £6,250
  • 8% on the final £25,000 = £2,000

Total Stamp Duty = £12,000

When are the changes coming into effect?

From 1 April 2016.

Can landlords offset these costs?

They can claim stamp duty back later against capital gains tax bill. If they sell the property at a later point for a profit, they can offset the purchase costs against any eventual capital gains tax

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