Buy-to-Lets and Second Homes – Buy Now or Double Your Tax Bill…
The Chancellor’s Autumn Statement on Wednesday introduced new Stamp Duty Land Tax (SDLT) measures which are set to have a huge impact on residential landlords or those purchasing second homes. From 1 April 2016, the level of SDLT payable on an investment property will increase, with an additional 3% charge being added to each tax band. To put this into context, the current SDLT liability on a £500,000 investment property is £15,000 – after 1 April 2016, with the additional charge, the liability goes up to £28,800 i.e. almost doubling the tax payable.
The measures have been introduced in an attempt by the Government to slow the buy-to-let market and prevent investors from taking valuable housing stock away from the private ownership sector. The tax increase is also due to raise a further £1 billion for the Government by 2020. There are still some key points which haven’t been finalised, including for example how much extra SDLT (if any) might be payable by an investor who has already contracted to buy a new property that isn’t due to be constructed for several years.
While the actual effect of this change will remain to be seen, it is likely that there will be a surge in buy-to-let purchases before 1 April deadline next year, which will then give a distorted image of the strength of that market. There is also the risk that landlords pass their additional tax costs on to their tenants by raising rents.
Analysts have already started to look at the ways in which landlords/investors can potentially avoid, or mitigate, the effect of the tax increase – for instance, by living at the property themselves initially, then letting it at a later date. It is also currently possible to offset the SDLT charge against the eventual Capital Gains Tax liability arising when the property is sold, so that the additional cost is recouped at that stage. The Government will have to look at each of these areas, and may potentially close any loopholes which are exploited.
Between now and the start of April, it will be interesting to see how the property market reacts to these changes, and whether in the long-term there is a benefit to those trying to get onto the property ladder, or if this is merely a Government ‘tax raid’.