The new stamp duty land tax rules – what should “buy to let” investors do?

The new stamp duty land tax rules – what should “buy to let” investors do?

For many the announcement in the Autumn Statement 2015 of a 3% rise in stamp duty land tax (SDLT) on buy to let properties and second homes caught many by surprise. The aim is that this will reduce competition between first time buyers and investors for many properties but there is also the likelihood that there will be upward pressure on rents. Furthermore to be clear, the new measures will not just hit landlords but also anyone purchasing a second home such as parents buying a property for their children or a couple purchasing a home together where one is already a homeowner.

The SDLT regime had already seen a radical change in December 2014 to a banding system.

The current and proposed bands and rates are;

new stamp duty land tax rules table

The method of calculation is to apply the rates specified to the parts of the relevant consideration falling within each band. The new rules to be introduced in April 2016 will add £7,500 to the cost of buying a £250,000 buy to let or second property, rising to an extra £13,500 for a £450,000 property.

So what can the buy to let investor do?

First, it is important to make clear that this is a transaction tax when buying a further buy to let or second property so no existing investor will be hit with a deeper tax burden.

Second, for those considering a buy-to-let investment, there is still the option of moving into that property as a primary residence and renting your current home.

We had in a previous blog looked at the option of holding buy to let properties in a company in the light of earlier buy-to-let changes that will see mortgage interest relief reduced to the basic rate of tax from April 2017. Companies can still get mortgage interest relief at their marginal rate, which may be higher than the basic rate of 20 per cent. However when operating through a company clients will need to be aware of the new dividend tax due to come into effect from April 2016. What is also clear is that buying through a company will not escape the extra SDLT charges outlined above. The Treasury is even proposing that the first purchase of a residential property for companies will be subject to the higher SDLT rate. The only exemption proposed is for companies that hold ‘significant investments’ in residential property namely more than 15 properties.

In reality therefore the only option for most investors to avoid the new SDLT hike is to press for any new purchase to be completed before the new measures come into effect.

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