The government has made it clear that they now want to encourage first time buyers over and above Buy To Let landlords. As a result, we are just a few weeks away from the massive increase in stamp duty on second properties. From April 1st anyone buying a second property will be charged an additional 3% stamp duty. As always these things come with a nice acronym to help you remember how you are being shafted and in this case it is SDLT (Stamp Duty Land Tax).
Stamp Duty Increase on BTL properties
A 3% increase in Stamp Duty has come as a shock to many investors, particularly bearing in mind the other onerous tax changes that are currently being bought in. The tax advantages that BTL investors have got used to are all disappearing. Many readers have told me that all these recent tax changes will mean their profitable property portfolios will become loss making within the next 12 months.
Many investors hoped for a consultation phase before the new stamp duty changes were implemented but that doesn’t look likely now. The recently published consultation paper, although not final, has given us all a lot more detail about how SDLT is likely to be applied.
Essentially the new additional SDLT tax of 3% will be applied whenever a second property is purchased. This applies to ALL second properties even if the property is not rented out. If it is a primary residence and the first property is subsequently sold within 18 months then the additional 3% stamp duty can be reclaimed. This of course does create the opportunity to rent for a short period of time and still reclaim the additional tax although this will have limited appeal to anyone trying to build a BTL portfolio.
In real terms the increase is substantial. A property costing £250,000 would see the stamp duty leap from 1% to 4% meaning an increase from £2,500 to £10,000. A nice £7,500 bonus for the chancellor on that sale alone. Will it affect the property market? Of course it will particular bearing in mind all the other tax changes being bought in on BTL properties at the same time.
Only one primary residence allowed for SDLT
As with all new tax changes everyone is looking for the loop holes and the obvious one is can a married couple, or even partners, have a primary residence each? The answer is no – only one property is allowed. Furnished holiday homes also fall into this category although time share properties are expected to be exempt.
SDLT is designed to remove the BTL unfair tax advantages
The government have made it clear that they see no reason why BTL investors should be able to claim tax perks that ordinary owner occupiers cannot. As a result, the many tax advantages that investors have enjoyed, like claiming tax relief on mortgage interest and claiming 10% tax deduction from rental income profits are all disappearing.
If you have BTL properties it is vital that you understand these changes and discuss with your accountant how they will affect your profits in the future. Some surveys suggest that around 13% of BTL owners plan to sell their rental properties as a result of the recent changes. I suspect that figure may be a lot higher when landlords see the effect that the recently announced tax changes will have on their profits.
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