Stamp Duty Reforms for Investors and Second Home Purchasers
What has been announced?
3 minutes to read
The UK Government has announced an increase in Stamp Duty Land Tax (SDLT), with an additional 3% rate to apply to the purchase of additional properties, such as buy-to-let and second homes. The new rate will come into effect from 1 April 2016.
The government has confirmed that it will issue a consultation on the policy detail.
This latest change follows the more radical reforms last December which saw the rate of Stamp Duty fall for properties priced below £1.1m and rise for higher value properties.
What impact will the changes have on rates?
Under the new rules investors and second home purchasers will pay an additional 3% rate of Stamp Duty, the impact on rates is summarised below:-
When do the new rules take effect?
The government has confirmed that the rules will cover all relevant purchases from 1 April 2016.
How will “additional” homes be defined?
The intention is that anyone who owns a home anywhere in the world will pay the higher stamp duty on purchase from April 1 2016, unless they are replacing their primary residence in the UK.
The government confirmed that the new rate would not apply to “corporates or funds making significant investments in residential property”, the precise definition of this exemption will be included in the consultation process.
How will the new tax apply to off-plan investors?
The Treasury has clarified that those who exchanged before the Autumn-font-family: Statement would not be liable to pay the additional stamp duty charge even if they complete after April 1st next year. In terms of other purchase timings, this issue is likely to be clarified in the consultation process.
How will the reforms impact on the market?
· It would seem fair to expect a boost in activity between now and the end of March next year, as those affected by the changes look to complete on purchases before the new rates are implemented.
· Taken together with the restrictions on mortgage interest tax relief for landlords, announced in July this year (which will mean that only a basic rate deduction will be available after a phased introduction between 2017-18 and 2020-21), there is likely to be a reduction in demand for buy-to-let investments. It is difficult to estimate the scale of this reduction accurately although the Office for Budget Responsibilty have confirmed their view is that transactions will slip 3% in 2016/17 and 2% thereafter.
· However, any notable fall in rental supply would be likely to result in increased rents which should act to encourage new entrants into the investment market, especially in markets suffering from a structural undersupply of accommodation such as London and the South East of England. This would mitigate the impact of lower investor demand due to the tax.
· It would appear that the government hopes that any loss in activity from investors will be off-set by additional purchases from owner-occupiers, and the announcements made yesterday regarding additional support for first time buyers are aimed at achieving this shift in demand.
· There is likely to be less trading of existing investment portfolios, as investors try to mitigate higher purchase costs by reinvesting in and improving their current stock, this could lead to a reduction in market supply in some areas, which could put upward pressure on prices. However it is worth noting that under current rules, landlords will be still be able to offset the cost of stamp duty against any capital gains tax payable on the sale of the property.
· With institutional investors set to be exempted from the new tax rate, the growth in the professional PRS sector is likely to continue.