Stamp duty percentages for second properties changed on April 6th 2016. This directly affects landlords who are looking to purchase in the future as there s now a 3% surcharge on top of the original stamp duty price.
Whereas before there was no stamp duty payable for properties up to £125, 000 from now on all properties from £40, 000 and up to £125, 000 will be charged the 3% stamp duty and all properties £125, 000 and above will be charged the original 2% + the new 3% giving a total of 5% stamp duty on properties above £125, 000.
So this has a dramatic effect on a landlords’ cash flow when purchasing investment properties.
The flip side is it also affects landlords who wish to move home because their home is still essentially a second property they will have to pay an extra 3% stamp duty on their next home.
This could lock landlords into their original homes and they may not now be in a position to move due to these extra costs.
So when budgeting to buy your next investment property you must be looking at that extra 3% and making sure you have that extra cash available.
Here’s What The Government Has To Say
The higher rates of SDLT (Stamp Duty Land Tax) on purchases of additional residential properties continue the government’s commitment to supporting home ownership and first time buyers, and form part of the government’s Five Point Plan for housing.
In developing the policy proposals for the higher rates of SDLT, the government is seeking to balance support for the wider housing agenda whilst maintaining the efficiency, fairness and simplicity of the tax system, and minimising tax avoidance opportunities.
The vast majority of residential property transactions will not pay the higher rates of SDLT. In particular, the higher rates will never apply where, at the end of the day of the transaction, an individual purchaser only owns one residential property (or, in the case of joint purchasers, that at the end of the day of the transaction each one of the joint purchasers only own one residential property).
The government estimates around 90% of residential property transactions in England, Wales and Northern Ireland will not pay the higher rates of SDLT.
The most common scenario in which purchasers will pay the higher rates is where they are purchasing a buy-to-let or second home in addition to their main home. More complex cases are discussed later on in this consultation.
The higher rates will only apply to additional residential properties purchased in England, Wales and Northern Ireland on or after 1 April 2016. The higher rates will be 3 percentage points above the current SDLT residential rates. They will be charged on the portion of the value of the property that falls into each band.
*Transactions under £40,000 do not require a tax return to be filed with HMRC and are not subject to the higher rates.