Buy-to-let investors will pay thousands of pounds extra in tax when they buy a property following the announcement of special "landlord" stamp duty tax rates applying from April 2016.
Stamp duty rates will be three percentage points higher for buy-to-letters than those buying a property to live in from April next year.
It means the tax bill on a buy-to-ley property costing £250,000 will jump from £2,500 to £8,800. More examples are in the table below.
The same increased stamp duty rate applies to buying other second properties, such as holiday homes, in which the owners do not intend to live full-time.
| Value of second property/buy to let (£) |
Current SDLT (£) |
SDLT from 1 April 2016 (£) |
Increase in tax (£) |
|---|---|---|---|
| 150,000 |
500 |
5,000 |
4,500 |
| 250,000 |
2,500 |
10,000 |
7,500 |
| 350,000 |
7,500 |
18,000 |
10,500 |
| 450,000 |
12,500 |
26,000 |
13,500 |
Source: Blick Rothenberg LLP
The move will net the exchequer £625million next year and £880million by 2012, the Treasury estimates.
A rush of purchases ahead of its introduction is even expected to bring in an extra £30million before April.
The Treasury’s Spending Review and Autumn Statement document today lays out a new set of rates for buyers of residential property for rent and for second homes.
| Property value |
Stamp duty rate for owner-occupiers |
Stamp duty rate for second property/buy-to-let |
|---|---|---|
| (No duty payable properties costing under £40,000) | ||
| Up to £125,000 |
Zero |
3% |
| The next £125,000 (the portion from £125,001 to £250,000) |
2% |
5% |
| The next £675,000 (the portion from £250,001 to £925,000) |
5% |
8% |
| The next £575,000 (the portion from £925,001 to £1.5 million) |
10% |
13% |
| The remaining amount (the portion above £1.5 million) |
12% |
15% |
The higher rates will not apply to purchases of caravans, mobile homes or houseboats, or to corporate entities or funds making significant investments in residential property. The government will consult on the policy detail, including on whether an exemption for corporate entities and funds owning more than 15 residential properties is appropriate.
The stamp duty regime was overhauled last year and so-called “cliff edges” in the system were removed. These had triggered large tax bills, based on the entire value of a property, as soon as the purchase price breached them.
It had led to the bunching of properties for sale just below each threshold.
To replace that, increasing rates were applied to portions of a properties value so that tax bills rose gradually. The overall effect was to lower the stamp duty bill on all properties below £937,500 in value.
• We'll explore the ramifications of all recent buy-to-let changes in next week's money newsletter: click here and enter your email