Exploring the changes
In last week’s Autumn Statement, UK Chancellor George Osborne announced an unexpected stamp duty increase on any property bought as a buy to let investment or a second home in England, Wales or Northern Ireland.
From 1st April 2016, investors will be obliged to pay an extra 3% surcharge, otherwise known as the Stamp Duty Land Tax (SDLT), on any property that meets the above criteria and is over the value of £40,000.
As an example, the percentage payable on a £200,000 investment in the current tax year is 0.80%. With the introduction of SLDT next year, this percentage will increase to 3.80%.
The tax will not affect first-time buyers.
Implications for investors
The immediate reaction from buy-to-let investors has been concern that the stamp duty increases will significantly affect after-tax profits. Figures collated by Old Mutual Wealth for The Guardiandemonstrate that the tax bill faced by landlords looking to buy and rent in 2017 is likely to be triple the amount it is today – a startling statistic for those who have expanded their property portfolio to capitalise on the growing rental market in recent years.
Broadly speaking, the changes are set to impact London’s high-end housing market the most. As detailed in The Telegraph, there are concerns that much of the capital’s wealth will flow overseas as those investors keen to avoid heavy taxation seek better deals abroad.
For the time being, though, property experts are predicting a surge in property purchases in the UK prior to the introduction of the new rates in April as landlords clamber to secure affordable investments closer to home.
Many investors are arguing that the new charges will discourage new landlords from coming into the market, which will reduce the supply of rental property. Some landlords are also threatening to increase rents in order to offset the increase in taxes.
Examining the changes in context
When taken at face value, the changes look to throw the viability of many investors’ short-term strategies into doubt.
However, it’s important to put the increases into context. Here are three reasons why the new stamp duty tax may not spell disaster for UK landlords:
• UK stamp duty rates are much lower than those in many other global markets, where they can often reach heights of 15%.
• The introduction of the new stamp duty changes enforces the government’s growing agenda to stabilise the UK property market and supply more housing to meet growing demand. The Conservatives’ aim is to stimulate activity amongst first-time buyers and allow them easier entry to a market that has typically been dominated by buy-to-let landlords in recent years, and efforts such as these to protect and stabilise the UK housing market in the longer term are very much in landlords’ best interests.
• Interest rates are also likely to remain low in the wake of the increases, which will contribute to long term sustainable growth.
Contact Surrenden Invest for more information on the most recent stamp duty changes and how they are set to affect your investment strategy.