We don’t know yet what impact this will have on the market however thoughtful buy-to-let investors will look at the whole investment rather than be put off by headlines.
Firstly, there is a consultation to take place and therefore there are a number of questions that need to be answered. But, in terms of what we do know, it seems that this is the state of affairs. The greater stamp duty rates will be 3% higher – for properties over £40,000 – than the existing ones which means that we have a situation where:
• £40,000 to £125,000 – Stamp duty levied at 3% (currently 0%)
• Up to £250,000 – 5% (currently 2%)
• Up to £925,000 – 8% (currently 5%)
• Up to £1.5m – 13% (currently 10%)
• Over £1.5m – 15% (currently 12%)
Doing some basic maths for a property valued at £300,000, the existing stamp duty payment is £5,000; however, under the new regime and assuming you don’t get that first £40,000 SDLT-free then the new cost would be £14,000; if you do get that first £40,000 stamp duty-free (which seems unlikely) it would cost £12,800.
Whatever way you look at it, it’s clearly a big jump for any landlord to stomach and will undoubtedly impact on the decision-making process when landlords are weighing up whether to purchase or not. We should however reiterate that SDLT is an allowable expense and will be offset by any capital gain made when the property is subsequently resold.
There are more caveats however, in that the newer rates will firstly not apply to the purchase of caravans, mobile homes or houseboats. The details also suggest that it will not apply to ‘corporates or funds making significant investments in residential property given the role of this investment in supporting the government’s housing agenda’. But, what do we mean by ‘corporates’? Will this mean that purchases within any limited company structure will not have to pay the extra stamp duty rates? Another matter for the consultation period I would think.
And, what about existing landlords? There is some initial confusion about whether this will be a blanket increase for all those purchasing additional properties, or whether existing landlords, for instance, will not be subject to it. Some commentators say it’s for new landlords only rather than existing ones, however I suspect this may not be the case.
Finally, what will this announcement do to the buy-to-let market up until April 1 next year? We are likely to see many landlords looking to complete on purchases within the next five months in order not to have to pay the extra tax; we may even see landlords who had planned to add to their portfolios later in 2016 do so early, and this increase in demand could have an impact on house prices during that period. Plus, of course, how will landlords purchasing post-1 April next year look to cover off this increase in costs for them – will there be attempts to increase rents? Lastly, will we see a big tail-off in buy-to-let activity once the new taxes are levied and how might this change the environment for property investing in the longer-term?
There are many questions to be answered but coming so quickly on the back of the changes to higher rate tax relief on mortgage interest payments, all buy-to-let market stakeholders may well conclude that we are currently not in the Chancellor’s good books.
Bob Young is chief executive officer of buy-to-let lender Fleet Mortgages
