Understanding the new 3 per cent stamp duty surcharge on buy-to-let and the impact it may have on investors
Wednesday 13 April 2016
George Osborne’s 3 per cent stamp duty surcharge went live in 1st April. It applies to anyone who already owns one residential property as their principal place of residence and is buying an additional residential property within England, Northern Ireland, Wales, and Scotland.
If you own a property in Spain which is your main residence and you are buying another property in England then the 3 per cent surcharge will apply.
It’s fair to say this has been established as yet another Government measure to stifle the growth of the private rented sector.
But whether or not the extra charge will mean frantically preparing your properties for sale will depend on your individual circumstances and choices.
The 3 per cent is added to whatever the relevant stamp duty is for your purchase but you should note that properties below £125,000 do not attract stamp duty but the 3 per cent surcharge will still apply.
If the property that you are purchasing will become your main residence, then the surcharge will not apply. However, you need to make sure that you dispose of – by either selling or gifting - the last main residence in order to avoid the surcharge.
In terms of how this works in practice, if you move out of one residence and buy another one which becomes your main residence then you will have up to 36 months to sell the your initial property after purchasing the second property, at which point HMRC will provide a full refund.
The surcharge will not apply to second properties that cost less than £40,000 or to homes that are deemed as caravans, houseboats, or mobile homes.
The stamp duty surcharge and inheritance
If you are buying the home for your child and their name is the only name on the property deeds then the property will be exempt and if you inherit a property then the surcharge will not apply - charities and social housing providers will be also exempt.
And finally, the Government has clarified that if you inherit a share in a property worth 50 per cent or less while in the midst of purchasing a main residence then higher rates will not apply.
And so, a share valued at the same amount in a single property will not qualify for the additional charge as long as it is inherited within 36 months prior to the transaction.
It's also worth noting that if you pay capital gains tax when you sell one of your properties you can offset the new 3 per cent charge against your capital gains tax - not much consolation but still worth knowing.
Initially, it was thought that if you owned 15 properties or more you would be exempt, but the government has clarified in the March budget that you will still be liable.
And for anyone who is considering not disclosing their home to their conveyancing solicitor, they should be advised that HMRC has tasked solicitors with finding out whether landlords own another property or not.
The penalty for non-disclosure could mean fines worth much more than the 3 per cent surcharge.
Landlords may consider pushing the stamp duty surcharge back on the seller
In terms of the impact that this new measure will have on the private rented sector, my personal view is that this measure, along with the changes to the treatment of mortgage interest rate relief will work together to discourage further new entrants into the market as well as suppress the growth of existing amateur landlords.
But those landlords who treat property as a business will simply incorporate this new tax into their purchasing strategies and essentially push the cost onto the seller.
Over the last few years the sector has seen the introduction of quite a few new auction houses that work on the basis that the buyer pays a premium and the seller pays very little in terms of fees to sell their properties.
It will be interesting to see how this new measure impacts those businesses and I wonder if landlords and investors will still be prepared to pay such premiums as well as a surcharge.
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