Chancellor George Osborne’s Autumn Statement and Spending Review may have thrown a large spanner in the works for people looking to invest in buy-to-let properties or second homes. He’s decided to wack a new 3% surcharge on stamp duty. His argument? It will be fairer for first-time buyers (as the surcharge won’t apply to them). Our argument is that this extortionate percentage puts landlords at a huge disadvantage without good enough reason. It will also conveniently raise an additional £1 billion for the Treasury by 2021.
What does this surcharge look like in figures?
The buy-to-let market has been vibrantly active over the last two decades, but this change – due to come in on 1 April 2016 – could send that activity into the gutter. To put this surcharge into perspective, a first-time buyer would pay 1% stamp duty on a £250,000 property, so that’s £2,500. A landlord would also pay that 1%, and then an additional 3% on top, totalling an eye-watering £10,000.
Naturally, the higher the price of the property, the higher the stamp duty percentage, and the higher the surcharge. For a £300,000 property, the stamp duty bill would be £5,000 for a first-time buyer, but a whopping £14,000 for a landlord. This change is so significant it could price oodles of landlords out of the buy-to-let market.
What effect could this surcharge have?
The Chancellor’s announcement is expected to prompt a rush of purchases ahead of the beginning of April – up to 50,000 – to avoid the inevitable extra fee. A move that may make it difficult for first-time buyers to get a look-in. However, house prices are expected to drop sharply post-April 2016, so we may actually see people wait until after the new surcharge goes live in the hope of saving more than the additional stamp duty payable. (Decreasing house prices may, of course, move properties into lower stamp duty bands.) This has been confirmed by a Think Tank.
We’re yet to be convinced. The surcharge isn’t going to be adding pennies onto a landlord’s stamp duty sum, it’s adding serious money. The surcharge looks guaranteed. Dropping house prices is never guaranteed, although there is certainly the risk that once the surcharge exists, people will be less willing to spend so much on property. On the flip side, we could see the first-time buyers’ market boom.
Our advice to landlords
If you’re serious about involvement in the buy-to-let market, be it for retirement income or purely for investment, we would advise you try and complete pre-April 2016, circumstances permitting. If that isn’t an option, remember that you can potentially offset the costs later down the line; if you end up selling the property for a profit, you can claim stamp duty back against your capital gains tax bill. You could also look to spread the additional cost across rental charges to tenants, but be mindful of becoming unaffordable.
If you do become a landlord, make sure you’re covered with quality referencing and insurance from LegalforLandlords. You can also call us for completely free advice on 0333 577 9050.