As we all know, when we buy a residential property we, generally speaking, have to pay tax to the government in the form of Stamp Duty Land Tax - stamp duty. This has previously been an additional cost people factored into the purchase of a new home, but whilst adding to the overall expense, has not been too punitive.
In the Autumn Statement, the Chancellor George Osborne announced changes to the rates at which stamp duty is charged. These changes come into force on 1 April 2016, and apply, broadly speaking to the purchase of a second home of a ‘buy to let’ property.
The rates and bands are as follows:
|Price band||Rate for one residential property||Rate for second home or buy to let property|
Up to £125,000
£125,001 - £250,000
£250,001 - £925,000
£925,001 - £1.5 million
Over £1.5 million
The rates apply to the proportion of the purchase price falling into each band. So on the purchase of the only home that costs £300,000 the calculation is:
- the first £125,000 (@0%) – no SDLT
- £125,001 - £250,000 (@2%) – SDLT is £2,500
- £250,001 - £300,000 (@5%) – SDLT is £2,500
- Total SDLT payable is £5,000.
There new rates which apply to purchases of second homes and ‘buy to let’ properties, represent a significant increase in the SDLT the purchaser has to pay.
The new rates will apply to anyone purchasing a residential property here in England and Wales, where they already own a residential property in another country – the new property here will qualify as a ‘second home’.
So from 1 April, on the purchase of a second home or buy to let property that costs £300,000 the calculation is:
- the first £125,000 (@3%) – SDLT is £3,750
- £125,001 - £250,000 (@5%) – SDLT is £6,250
- £250,001 - £300,000 (@8%) – SDLT is £4,000
- Total SDLT payable is £14,000.
It remains to be seen what impact this change will have on the second home and buy to let property markets. It may have an impact on property prices generally. It will most certainly be a significant cost to factor into the purchase of a second home or rental property. It may well put some people off.
Moreover, at the time of writing, the government has not produced any legislation or fine detail as to these changes. In his March budget, the Chancellor could make further tweaks or changes.
Quite apart from the rights or wrongs of increasing these taxes, the big question for solicitors is, how will we ever know if the property purchase in which we are instructed, is the purchase of someone’s main home or their second, third, fourth, or fourteenth property in this country or abroad? Can we rely on what you tell us?
If you have not yet begun your purchase of your second home or buy to let property, then you are probably too late, as the conveyancing transaction usually takes a minimum of four to six weeks.
For those of you already proceeding with a purchase - keep everything crossed there are no hiccups along the way and that the transaction completes by 31 March to avoid paying the additional tax.