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New Stamp Duty Rates Explained

20 Jan 2016
New Stamp Duty Rates Explained

The new stamp duty rates for second homes are due to come into force on 1st April 2016.  This tax is designed to help first-time buyers where it’s hoped that by making buy-to-let less appealing, demand for investment properties will fall, making the property ladder more accessible.  Not such good news for hundreds of thousands of tenants looking for homes of course, so we are encouraging any investors to buy now and complete before the 1st of April.

So what will the new stamp duty mean to anybody buying a second home or a buy-to-let property?   

There will be an additional charge of 3% applied on top of the current stamp duty land tax rates:

·      3% tax to pay on homes worth up to £125,000,

·      5% tax on homes that cost between £125,001 and £250,000,

·      8% on homes worth between £250,001 and £925,000.

·      13% on homes worth up to £1.5 million

·      and properties priced above £1.5 million will incur a 15% charge.

It is not all bad news, for second-home buyers who exchanged contracts before the Autumn Statement on November 25th 2015, the higher tax rate won’t apply, even if completion is after the 1 April deadline.

The other positive aspect is that as the rules currently stand, investors can offset the additional stamp duty, along with other purchase costs, against capital gains on the property in the future, although of course that could change in future tax amendments though, so be wary.

For parents wishing to help their children onto the property ladder you can still be a guarantor for a loan, but a joint mortgage that requires a parent’s name on the title deed will be hit by the tax­.  Also couples who want to buy a property each will be taxed, married couples and civil partners will be treated as a single unit and any additional property purchased by either person will attract the higher rates.

What can you do if you want to invest in a buy-to-let or second home without incurring the new taxes?

Buy now and complete by 1 April but please keep an eye on the market to make sure that the rush doesn’t mean property prices rise temporarily and end up exceeding the 3% saving made by buying quickly.

Also be aware that there are other potential tax changes on the way, with the wear-and-tear allowance for landlords of furnished properties being revamped and coming into effect in April, and an earlier deadline for paying capital gains tax on property sales.