Stamp Duty Changes 2016: How Will They Impact You?
The Chancellor, George Osborne, has recently delivered the combined comprehensive spending review and the Autumn Statement. The major story from this is the Stamp Duty Land Tax (SDLT) on additional properties.
As of 1st April 2016, higher rates of SDLT will be charged on purchases of additional residential properties (above £40,000), such as buy-to-let properties and second homes. The higher rates will be 3 percentage points above the current SDLT rates but will not apply to purchases of caravans, mobile homes or houseboats.
The Chancellor said he was doing this to make life fairer for first time buyers, because the surcharge does not apply to people buying their own home. The surcharge will be a severe blow for ordinary people with hopes of investing in buy-to-let or a second home, as on a £250,000 property the buy-to-let SDLT will become a massive £10,000.
The increase in SDLT is expected to raise £30m in 2015/16; £625m in 2016/17; £700m in 2017/18; £760m in 2018/19; and £880m in 2020/21. The money raised will be reinvested into building new homes in areas such as London, the Lake District and Cornwall, where local people have been priced out.
The Chancellor’s changes mean that each SDLT band will go up by 3% for buy-to-let properties as follows:
- Property purchase of £40,000 to £125,000 – SDLT will be levied at 3% (currently 0%)
- Up to £250,000 – 5% (currently 2%)
- Up to £925,000 – 8% (currently 5%)
- Up to £1.5m – 13% (currently 10%)
- Over £1.5m – 15% (currently 12%)
In other changes announced by George Osborne, buy-to-let and second home purchasers will have less time to settle their SDLT bill, reduced from 30 days to just 14 as of 2019. At the same time, anyone selling a buy-to-let or second property will have to settle their Capital Gains Tax bill within 30 days, rather than anything up to 21 months after disposal, depending on when the sale occurs.
The hard-pressed savers will feel aggrieved by the Chancellor’s tax grab as they saw buy-to-let as the last way to secure a decent retirement income in a world of low interest rates.
Unfortunately, further details are currently scarce and the Government will consult on the policy detail, including debating whether an exemption for corporates and funds owning more than 15 residential properties is appropriate. We also await an announcement on whether the increased levels of SDLT apply on matters that have exchanged before 1st April 2016 but that complete after that date, but the position will become clearer after 9 December 2015 when the draft legislation is to be published.
Managing Director of FleetMilne Property, Ben Evans, feels that the introduction of this new 3% SDLT increase is creating more questions than answers and there is a huge amount of confusion and uncertainty within the buy-to-let sector.
Some typical questions we have been asked:
- Married couple own their home and the mortgage is in the husband’s name. Can the wife purchase a second home and avoid stamp duty?
We’re advised that she can; it only applies to the name purchasing the property so the wife could purchase and not pay the additional SDLT.
- A person owns 25% of a holiday home with friends. They’re now looking at moving home, will they pay the additional 3% despite this move being their ‘primary residence’.
We believe so, yes. If their name is on the property then it would be considered a second home, and therefore they would pay the additional SDLT.
- I want to downsize from my family home but I’m likely to purchase the next property before I sell the current one, will I pay the 3% stamp duty?
We believe so; if the new property is purchased whilst you still own the existing home and your name is on the deeds you will pay the additional 3% SDLT.
- I buy and sell property without renting them out. Do I need to pay the additional 3% figure?
If you already own any other property at the time of purchasing, then yes.
- Will the 3% apply to properties exchanged but not completed by April 2016?
We all await further notice on this one.
Key points taken from the Autumn Statement:
- Tax credits: controversial changes ditched altogether. Extra borrowing will make up the shortfall in the first few years of the parliament.
- Housing: SDLT increased by 3% for buy-to-let and second home buyers; 400,000 new affordable homes in England by 2020; new Help to Buy scheme just for London.
- Police: no cuts to budget.
- New tax to pay for social care, to be levied by local authorities as a 2% council tax precept.
- Departmental spending cuts: Transport -37%, Business -17%, Defra -15%, Energy -22%, Culture, Media and Sport -22% (but free museum entry will stay).
- Budget surplus: target of £10bn by 2020 maintained.
- Local governments will be allowed to keep all cash generated from asset sales.
- Apprenticeship levy set at 0.5% of payroll, with £15,000 allowance to exempt small businesses.
- OBR forecasts: UK growth outlook remains broadly unchanged from July.
- Small business rate relief extended for 12 months to April 2017.
- Science funding protected in real terms for rest of Parliament.
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