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Stamp duty costs: what landlords need to know

Posted on 2017-07-03

Stamp duty costs: what landlords need to know 

Whenever someone purchases a property in England, they are required to pay Stamp Duty Land Tax (SDLT), usually referred to as stamp duty. A stamp duty payment is due on every property purchase over a certain price and is therefore something that every landlord or property investor has to consider before expanding their portfolio.

The land tax is often divisive and is certainly one of the most talked about issues when it comes to the housing market. The system has many critics, but the fact remains that it brings in a significant amount of money for the Government each year. It's estimated, for example, that during Q1 2017, the Government collected around £1.995 million in SDLT. This figure represents a rise of 16% when compared to the same period the previous year. 

Stamp duty overhaul

In December 2014, the stamp duty system was overhauled by then chancellor George Osborne. It was a move that was broadly welcomed by the property and housing industry. The chancellor’s rethink of the system involved cutting stamp duty costs for '98% of homebuyers' by replacing the old slab system with a more progressive set up similar to income tax.

The old rules required buyers to pay tax at a single defined rate on the entire property price. For example, a home costing £275,000 would represent a stamp duty payment of £8,250 as the buyer would have been required to pay 3% tax on the whole cost of the home.

From December 4 2014 onwards, buyers pay nothing on the first £125,000 of the price of their property and then a different rate of tax on each portion of the property price. For a home costing £275,000, the buyer is now required to pay 0% tax up to £125,000, 2% tax on £125,000 to £250,000 and 5% tax on £250,001 to £275,000.

This equates to a total stamp duty bill of £3,750, meaning the buyer of a £275,000 home is now £4,500 better off. 

Stamp duty surcharge

George Osborne and stamp duty were back in the headlines again less than a year later. In the 2015 Autumn Statement, Osborne announced that from April 2016 purchasers of buy-to-let properties and additional homes would be required to pay a 3% stamp duty surcharge.

The reasoning for this move was explained as giving a helping hand to first-time buyers and boosting falling home ownership levels. The proposal for a stamp duty surcharge was met with staunch criticism from the property industry, with many commentators expressing their concerns that it would have a negative impact on investment in the buy-to-let market.

An additional 3% in stamp duty is significant. Looking at that property priced at £275,000, under the new rules the buyer would be required to pay £12,000 (instead of £3,750) if the purchase is a buy-to-let or second home.

How have stamp duty changes affected landlords?

The additional cost for purchasing a buy-to-let property or second home did not come into force quietly. There was a well-documented surge of investors purchasing additional properties at the standard stamp duty rates before the 3% levy was applied on April 1 2016.

According to official figures from HMRC, the number of transactions in March 2016 - the month before the surcharge was introduced - was 70% higher than the figure recorded the previous year.

It then became apparent that the number of purchases made after the deadline and for the following few months were low as predictions of investors being discouraged from acquiring were proved right.

By the end of last year, for example, HMRC revealed that transactions were around 7% lower than the same period in 2015, before the rush to beat the stamp duty surcharge deadline began.

Stamp duty bands and useful calculators

Here are the stamp duty bands for both standard and buy to let/second home purchases:

Property or lease premium or transfer value

SDLT rate

Up to £125,000

0%

£125,001 to £250,000    

2%

£250,001 to £925,000    

5%

£925,001 to £1.5 million

10%

£1.5 million and above

12%

 

Property or lease premium or transfer value

SDLT rate

Up to £125,000

3%

£125,001 to £250,000    

5%

£250,001 to £925,000    

8%

£925,001 to £1.5 million

13%

£1.5 million and above

15%

These websites provide some further reading and useful stamp duty calculators which can give you an instant idea of how much you might need to pay:

- https://www.moneyadviceservice.org.uk/en/tools/house-buying/stamp-duty-calculator

- https://www.gov.uk/stamp-duty-land-tax/residential-property-rates

- https://www.stampdutycalculator.org.uk/stamp-duty-rates.htm

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