2
A residential buyer
buys a £400,000 property.
They pay no stamp duty for the value range £0 - £125,000.
They then pay 2% stamp duty on any part of the property's value that falls within the range £125,00.01 - £250,000. So they'll pay 2% of £125,000, which is £2,500.
They then pay 5% stamp duty on any part of the property's value that falls within the range £250,000.01 - £925,000. So they'll pay 5% of £150,000, which is £7,500.
So Total Stamp Duty =
£10,000.
For a buy to let or second home buyer
who buys the same value £400,000 property:
From April 2016, they will pay no stamp duty for the value range £0 - £40,000.
They will then pay 3% on the whole value of the part of the property's value which falls between £40,000.01 - £125,000. So they'll pay 3% of £125,000 (i.e. the whole value, NOT £125,000 - £40,000) = £3,750.
They will then pay 5% stamp duty (2% + 3% new surcharge) on any part of the property's value that falls within the range £125,000.01 - £250,000. So they'll pay 5% of £125,000, which is £6,250.
They will then pay 8% stamp duty (5% + 3% (new surcharge) on any part of the property's value that falls within the range £250,000.01 - £925,000. So they'll pay 8% of £150,000, which is £12,000.
So Total Stamp Duty =
£22,000.
The next move in a tax raid on Buy to Let landlords?
There many tax areas other than SDLT and LTT where changes have been announced that have made buy to let landlords worse off in recent years.
From 2017, higher rate tax relief on buy to let mortgage interest (landlords can offset mortgage interest payments against tax on rental income) started to be phased out.
Additionally, from April 2016 wear and tear tax allowances were reduced.
What effect are these changes having on the buy to let market?
In the run-up to roll-out of the tax in April 2016, there was a predictably frenzied buy to let property buying market as parties brought forward their purchases to avoid the new second home and buy to let stamp duty. This would increase prices in the short term, but the level would then similarly fall when the tax came in, all other things being equal.
Any price fall would likely be taken advantage of by richer property buyers looking to build up larger portfolios.
Many commentators predict that landlords will simply reclaim the extra tax from tenants. If there was a base rate rise, the compounded effect may, however, see many landlords struggle to stay afloat.
Landlords can, however, reduce their capital gains tax payments by offsetting purchasing costs, which include stamp duty, against them.
The Buy to Let 3% stamp duty surcharge, according to some experts, puts off house builders and developers, which is detrimental to efforts to alleviate the current UK housing crisis.
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