Significant Tax Changes for Buy-to-let Landlords and Second Home Owners

02 February 2016

Stamp Duty Land Tax (SDLT) is a tax which is payable on the acquisition of freehold or leasehold property. It is currently applicable to everyone in England, Wales and Northern Ireland (see the Land and Buildings Transaction Tax for Scotland) where the value of the property is in excess of £125,000. The amount of SDLT payable comprises a series of thresholds rising proportionately as against the value of the property.

The effect of the changes earmarked under the Chancellor’s surprise Autumn Review of November 2015 cannot be underestimated.  They are hard-hitting and implementation is expected as early as 1st April 2016. The new rates come in the form of surcharges – an additional means of taxation – on landlords of buy-to-let properties and/or purchasers of second homes.  These so-called ‘additional’ properties engage the tax so long as they are (1) for ‘residential’ purposes and (2) are over a value of £40,000. 

The surcharge manifests itself as 3 percentage points above (and in addition to) the current SDLT rates.  Thus, if an additional residential property is purchased for £100,000, with the new legislation, what would have previously attracted no surcharge would now be liable for a tax of £3,000 on the purchase price.  Similarly, whereas an additional residential property or buy-to-let at a value of £250,000 would have, prior to Mr Osborne’s proposals attracted SDLT in the sum of £2,500, it would now command SDLT of a staggering £10,000.

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      Source: HM Treasury                  *Transactions under £40,000 are exempt.

The reference to ‘additional residential property’ is constrained to one that is outwith a primary property. We have identified above where additional liability could arise and therefore if a purchaser is replacing his or her primary residence the surcharge will not apply.  So for example, If Mr W sells his main residence in order to move into a replacement main residence, the higher rates will not apply.  Conversely, if Mr W owns a main property and purchases another for, say, a holiday home or buy-to-let; because he is not replacing his main residence as per the proposed legislation any such further purchases will be subject to the heightened fees.

Looked at under a different lens, the ramifications of the requirement extend also, for example, to parents who wish to assist their children in joining the property ladder.  Indeed, parents who buy for their children or who buy jointly with their children will necessarily fall under the scope of acquiring an additional residential property.  It is true the parent could still act as a mere guarantor – but this is little consolation to many for whom the banks are still reluctant to lend on such a basis.

This is a highly technical area for which most readers will need to take advice.  The Treasury’s intended grip in this matter is yet more encompassing than there is space to set out here, given the further proprietary considerations of joint ownership, matrimonial ownership, foreign investors, corporate and trust purchases, and acquisition of certain types of property excluded from the proposed changes.

Worthingtons Commercial are experts in interpreting this area of the law and will advise on your individual case in a clear and simple way.  If you wish to protect your investments or need further information, contact David Wilson.

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