SDLT and the Sting in the Tail of Buy to Lets

SDLT and the Sting in the Tail of Buy to Lets

Published: 21 December 2015

George Osborne’s Autumn Statement announced on 25 November 2015 revealed some major changes which, ultimately, will reduce the attraction of a “Buy to Let” (BTL) investment from 1 April 2016.

This is partly due to the introduction of an additional 3% Stamp Duty Land Tax (SDLT) surcharge for those purchasing a second or additional property.

Stamp Duty Land Tax – Status Quo

Currently SDLT is payable on the purchase price of a property and this is calculated using HMRC’s percentage tier system:

Property or lease premium or transfer value

SDLT rate

Up to £125,000

Zero

The next £125,000 (the portion from £125,001 to £250,000)

2%

The next £675,000 (the portion from £250,001 to £925,000)

5%

The next £575,000 (the portion from £925,001 to £1.5 million)

10%

The remaining amount (the portion above £1.5 million)

12%

Stamp Duty Land Tax – from 1 April 2016

From 1 April 2016 when buying another property, whether as a BTL or as a second home, an additional 3% SDLT will be payable on top of the current rates, as follows:

Property or lease premium or transfer value

SDLT rate

Up to £125,000

3%

The next £125,000 (the portion from £125,001 to £250,000)

5%

The next £675,000 (the portion from £250,001 to £925,000)

8%

The next £575,000 (the portion from £925,001 to £1.5 million)

13%

The remaining amount (the portion above £1.5 million)

15%

Unfortunately, this means a 0% SDLT bill will become a thing of the past!

An additional blow is that SDLT will be payable within 14 days, cutting in half the time currently given to pay this.

Stamp Duty Land Tax – Limbo?!?

What does this mean for exchanges and/or completions that take place during the interim period?

Those who have exchanged contracts before 25 November 2015 will not have to pay the higher rate of SDLT on their purchase (even if the completion date is post 1 April 2016).

Furthermore, if both exchange and completion take place after 25 November 2015 but before 1 April 2016 the current SDLT rates will still apply as the new regime will not come into force until 1 April 2016.

However, those who exchange after 25 November 2015 and complete later than 1 April 2016 will be subject to paying the supplemental SDLT.

The Reality

So more tax to pay and less time to pay it…surely that can only mean bad news for all involved?

The Autumn Statement has caused controversy in the landlord world with hundreds expressing their disapproval by signing a petition.

David Cox from The Association of Residential Letting Agents described the additional SDLT levy as "catastrophic". He said that “to make owning a BTL property financially viable, landlords will need to pass on the increased stamp duty costs to tenants who will, in turn, see less spent on maintaining their property and, of course, see increased rents". Further, “the changes will also deter new landlords from entering the market, pushing the gap between the dwindling supply of available property and the growing demand even further apart”.

The rise in SDLT may not singlehandedly be the reason we start to see a decline in BTL’s but it most certainly will be a significant contributing factor as well as a further financial hurdle to consider in the purchasing of additional property.

The result: property investment may no longer be as attractive as it once was to certain landlords, particularly due to increased SDLT and an end to mortgage interest rate relief.

For more advice and detailed information contact Paula Abrahamian, Partner in our Property Team on 020 7632 1443 or email her by clicking here.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.