Buy to let & second homes will cost more from 1 April 2016, as the second major change to residential stamp duty land tax (SDLT) in 18 months, comes into effect from 1 April.
While the plans to change SDLT were announced in the Autumn budget, the fine detail has yet to be finalised.
Stamp duty is currently paid at a ‘standard rate’ for owner occupiers by everyone buying a property above £125,000. However, from April, buyers of ‘additional properties’, such as, second homes or buy to let properties, will have to pay 3% more than the ‘standard rate’ in each stamp duty band.
A slight silver lining is that it does seem certain that the changes will not be applied retrospectively to people who already own more than one property – if you are thinking about investing in property move quickly to ensure completion prior to the 6th April cut off!!
How much more will you have to pay?
Stamp duty rates will continue to be calculated on the portion of a property value that falls into the relevant stamp duty bracket. So, for instance, a buyer of a second home bought for £150,000, would have to pay 3% stamp duty on £125,000 and 5% duty on the remaining portion of the purchase price (in this case £25,000) that comes within the stamp duty bracket £125,001 – £250,000.
Buy to let and second home stamp duty tax bands (source: HMRC)
| Brackets | Standard rate for owner occupier | Higher ‘additional property’ rate (April 2016) |
| Under £40,000 | 0% | 0% |
| £40,001 – £125,000 | 0% | 3% |
| £125,001 – £250,000 | 2% | 5% |
| £250,001 – £925,000 | 5% | 8% |
| £925,001 – £1.5m | 10% | 13% |
| Over £1m | 12% | 15% |
What will an average stamp duty bill be like?
With the average house price at £288,000, the higher stamp duty on an ‘additional property’ will amount to £13,040 from April.
Who will the change affect?
In general, additional properties are considered to be second homes and buy to let properties while caravans, houseboats and mobile homes are not.
The Government is consulting on whether to exclude those who make ‘significant investments’ in residential property. It’s proposed that corporates and funds that have 15 or more residential properties will be exempt.
Do higher rates apply in all situations?
The new rules come into effect on or after 1 April 2016 but standard rates apply if contracts were exchanged on or before 25 November 2015. As such, you will pay the standard rate of SDLT if you own one property at the end of the transaction. What this means is that even if your main residence is being sold but the transaction has not completed before the purchase of the new property then the purchase will incur the higher ‘additional property’ duty. Refunds will be available if the previous main residence is sold within 18 months.
When is Stamp Duty paid?
Stamp duty is paid to the HMRC 30 days from the date of completion or you may risk a fine. Your solicitor or legal adviser should take care of this so you don’t miss the deadline.
What other Stamp Duty advice do you need?
If you already have a small property portfolio or are thinking of buying a buy to let property or a second home would like advice from a qualified source, please contact your local Chartered Accountants, at our office in Stockport. Ring 0161 456 9666 or email [email protected]
