Chancellor George Osborne recently announced changes to stamp duty rates, which could have a huge impact on landlords. The plans, which are due to come into force in April 2016, will see an increase of 3% on each stamp duty rate band, as the table below shows.
|Stamp Duty Band||Rates before April 2016||Rates from April 2016|
|£0 – £125,000||0%||3%|
|£125,001 – £250,000||2%||5%|
|£250,001 – £925,000||5%||8%|
|£925,001 – £1.5 million||10%||13%|
While the percentage increase may seem minimal, when put into practice, it can leave landlords with a hefty charge. For example, a £200,000 property bought before April carries a stamp duty of just £1,500. If the same property was purchased after April, landlords would have to pay an extra £6,000, shelling out £7,500 on stamp duty in total.
However, there are some factors that will affect if you’re liable to pay the higher charges. You will not pay the higher rates if:
- You only own one property at the end of the day of the transaction.
- The property you purchase is replacing your main residence, which is being sold.
You will pay the higher rates if:
- You are purchasing the property to replace your main residence, which has not sold yet. You will, however, be able to claim the charges back if your previous main residence is sold within 18 months of the purchase.
- You are purchasing an additional property.
In addition to the above, the following are exempt from paying stamp duty:
- Social landlords
- Caravans, mobile homes and houseboats
- Properties that cost less than £40,000
Speaking of the changes, Mike White of Newcastle lettings agent, letslivehere, said:
“The changes to stamp duty will have a detrimental effect on the smaller private landlord sector.
The challenging lettings market is already experiencing difficulties with the onset of new larger developments in and around our cities. It is unrealistic to assume that these costs can be absorbed by the landlord or indeed recovered from increased tenant fees and rents.
How will this affect the property market? Landlords that have invested in buy-to-let properties are becoming nervous and many will now look to consolidate their property portfolio, which could in turn flood the market.”
As expected, many landlords are looking for ways to avoid the hike in stamp duty charges. For example, many consider transferring the property into their partner’s name. However, the government treats married couples and civil partners as one unit. This means properties owned by both parties will be taken into account when determining if the higher stamp duty rates are applicable.
Global properties are also taken into consideration. If a landlord owns a property outside of England, Wales and Northern Ireland, the higher stamp duty rate may be applicable.
Many parents purchase a property for their children in order to help them get on the property ladder. However, if the parents are named on the deeds, they will face higher stamp duty charges if they already own a property. This can only be avoided by purchasing the property in the child’s name.
Article Courtesy of: letslivehere