New stamp duty regime hits ‘pension’ property buyers

The effects of Government measures to curb the buy-to-let market and make more homes available to first-time buyers are being felt in Staffordshire.

Jim Hickey, our residential and commercial property specialist, said increases in stamp duty levels for additional property purchases combined with restrictions on tax relief from April this year were certainly making clients think twice before entering the letting market.

Second residential properties purchased on or after April 1st, 2016 now attract an additional surcharge to Stamp Duty Land Tax (SDLT) even if they are not let out, and with a lower starting point of just £40,000 the majority of these now attract an additional three per cent duty.

Under the changes, the stamp duty on a £250,000 buy-to-let property rises from £2,500 to £10,000, while the rate for a £400,000 property more than doubles £10,000 to £22,000 under the new arrangements.

Recently landlords have also been hit with new rules, from having to check the residency of their tenants to health and safety regulations.

Jim said: “The new stamp duty regime isn’t the most straightforward to understand but there are benefits as well as drawbacks.

“For a first or only property you previously had to pay the SDLT at the rate applicable for the price of the property as a whole. Now the payment of the tax is calculated in different bands.

“For example, if you buy a £250,000 house that is not a second or subsequent residential property you now begin paying SDLT on the portion which is above £125,000 at two per cent. Then over £250,000 you start to pay five per cent but only on the amount which is above £250,000 up to £500,000, whereas before the tax would have been calculated at the highest rate applicable on the full amount.

“On a second property you pay three per cent SDLT up to £125,000, then five per cent on anything above £125,00 up to a maximum of £250,000. There are rates of eight per cent on anything above £250,000 up to £925,000, 13 per cent on any portion above £925,000 up to a maximum of £1.5million with a rate of 15 per cent applying for anything above that.

“If you’re in the position of buying your new home before being able to sell your former home you will pay the additional rate as you still have a main residence.

“If you sell your old house within three years you can claim this back online from the Revenue, however a lot of people are coming to us for help with this so clearly this process isn’t perhaps as straightforward as it seems.

“The problem often comes when individuals have an interest in their parents’ property. They may have a share under a trust and sometimes they will be affected by the changes.

“I had a situation where a client had an interest in his late mothers’ property and was buying his first house, and only avoided the extra duty as his mother had passed away within three years of him completing the purchase of his home.

“It’s very common for us to see people who have bought a couple of small properties worth less than £125,000 to rent out and cash in at a later date, and which they see as their alternative pension planning.

“Now the additional duty charged combined with other income tax changes has certainly increased the cost of that option.

“The key driver for the Government has been to make more property available for people to buy to live in themselves, but I’m certainly not convinced it’s had that effect.

“What it does mean is that we have to thoroughly check every client case we see to check whether they own any other property, including property abroad.

“For clients buying any residential property it means they really need to take professional advice at an early stage, and then to assess whether their proposed purchase is the best option for them once they know the impact of the duty and income tax changes.”

Are you thinking of becoming a landlord or need advice on buying a second property? Contact Jim today by calling our Leek office on 01538 399199 or email him at jh@bowcockpursaill.co.uk

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