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How much will Stamp Duty changes cost you?

Buying a property to let in Fylde? Stamp Duty changes could be about to make it more expensive.

At next week’s budget, and unless we’ve all been spectacularly misled, Chancellor George Osborne will announce a major hike in Stamp Duty Land Tax (SDLT) rates for buy to let owners.

Since December, a public consultation on the planned increases has been underway. We’ll find out the results of that consultation – and the effect it has (or hasn’t) had on the outcome – next week. In the meantime, here’s what the government’s proposing:

“Home ownership”, the proposals state, “is a key part of the government’s plan to provide economic security for working people at every stage of their life… This Plan re-focuses support for housing towards low-cost home ownership for first-time buyers.”

The proposals don’t explicitly say ‘we want to make business more expensive for buy-to-letters’ but it may as well.

The extra 3%

Under the new plans, if you buy a Fylde property to let, you’ll pay an additional 3% on whatever the SDLT threshold is. So, for example, if you buy a Fylde property for £120,000 and plan to live in it, you’ll pay no SDLT. But if you buy to let, you’ll pay Stamp Duty at 3%.

These rates could change with the next Budget, but as things stands the full breakdown of SDLT rates is as follows:

Purchase Price: Up to £40,000

  • Homeowner SDLT (%) 0%
  • Buy to Let SDLT (%) 0%

Purchase Price: Up to £40,001 – £125,000

  • Homeowner SDLT (%): 0%
  • Buy to Let SDLT (%): 3%

Purchase Price: Up to £125,001 – £250,000

  • Homeowner SDLT (%): 2%
  • Buy to Let SDLT (%): 5%

Purchase Price: Up to £250,001 – £925,000

  • Homeowner SDLT (%): 5%
  • Buy to Let SDLT (%): 8%

Purchase Price: Up to £925,001 – £1.5 million

  • Homeowner SDLT (%): 10%
  • Buy to Let SDLT (%): 13%

Purchase Price: Up to Above £1.5 million

  • Homeowner SDLT (%): 12%
  • Buy to Let SDLT (%): 15%

Case study

You’ve found a property in Poulton you’d like to buy to let. You agree a price of £150,000.

At the time of writing (pre-Budget) you’d pay SDLT only on that part of the price above the current SDLT threshold, which is £125,000. 2% of the remaining £25,000 would leave you with an SDLT bill of £500.

Now let’s look at the same position post-Budget, assuming the planned proposals take effect. Again, you’re buying a Poulton property to let. Again the price you agree is £150,000.

This time the SDLT would break down differently. Only the first £40,000 would be SDLT-free. The next £85,000 would be taxed at 3%, and the final £25,000 at 5%, leaving you with a total SDLT bill of £3,800.

Who pays?

Under the proposals, if your purchase leaves you with 2 or more properties, you pay the increased rate of SDLT. That applies even if the only reason you have two properties is because you haven’t yet sold the first one. In this case, you would claim an SDLT refund.

The effect

As you might expect, we’re concerned about the Stamp Duty changes. We’re concerned that, rather than leaving more properties to buy in Fylde, the actual effect will be to place more housing stock in the hands of bigger buy to let agencies (who can afford the increased fees), who will then be forced to pass those fees on to tenants in the form of higher rents.

The people who lose out are tenants, potential homeowners and landlords with small portfolios who are effectively priced out of their own businesses.

The options

There are things you can do to mitigate the effect of any changes to SDLT (and mortgage rate relief we’ve discussed previously on these pages). You can find some ideas here.

We’ll confirm the actual state of play once the Budget is announced next week.

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