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STAMPing out investment?

STAMPing out investment?

STAMPing out investment?

Date: April 11, 2016

So here we are!

After a record month in March 2016 of completions across England & Wales in an effort by purchasers of investment properties or second homes to beat the taxman, the 1st of April 2016 saw the introduction of the Government’s higher rate of Stamp Duty Land Tax (SDLT) on purchases of additional residential properties…basically an additional 3% on top of the usual Stamp Duty banding for properties.

What? How did that happen?

Well, by way of some brief background leading up to this, in 2015, the Government announced in their Autumn statement that they would be introducing a 3% additional rate of SDLT on purchases of additional properties – be they on a buy to let basis or as a second home – and they advised that this was going to come into effect on the 1st of April 2016.

Following concern however, that this plan was being implemented too quickly, the Treasury then confirmed that they would permit a consultation period expiring on 1st February 2016 and having considered the responses, the final policy design was announced at the March 2016 Budget with the implementation of the same coming into force on the aforementioned April date.

That increase does not sound too bad…

3% on its own actually does not sound too terrifying really but it is a significant deterrent to investors when you consider the SDLT banding that is already in place.

Below is the table from the Government site which shows a comparison between what the existing residential SDLT rates stand at and how things look if you are not a first time buyer:

Band      Existing residential SDLT rates    New additional property SDLT rates

£0 - £125k                     0%                                          3%

£125k - £250                 2%                                          5%

£250k - £925k                5%                                          8%

£925k - £1.5m               10%                                        13%

£1.5m +                        12%                                        15%

*Properties under £40,000.00 do not require a tax return to be filed with HMRC and are not subject to the higher rates.

Source: www.gov.uk

Using the above table then, the net effect will be that if anyone is purchasing a property in addition to their own home, they will pay an extra 3% for the first £125,000, 5% instead of 2% for the tier between £125,001 to £250,000 and 8% on the amount above £250,001 and so on.

Whilst this seems incredibly unfair and seems to squander chances of new investors entering the market (albeit existing ones probably have enough capital behind them to continue venturing forward), it does carry out effectively what the Government stated was their key intention for introducing this change: to show their commitment to supporting home ownership and first time buyers.

Our next blog will review the impact of this change and how it might affect you and what might happen next.

Khalid Shahjahan