Chancellor George Osborne is landlord bashing again with another new stealth tax aimed at cooling the buy to let market.
In his Summer Budget 2015, Osborne announced his slashing of mortgage interest relief for high rate taxpayers.
Now property investors, including non-residents, buying homes to rent or second homes for cash face a 3% hike in stamp duty on purchases of homes valued at more than £40,000.
The proposed new stamp duty land tax rates will not apply to buying caravans, mobile homes or houseboats, or to companies or funds making ‘significant investments in residential property’ supporting government housing initiatives.
How the new tax may work
The proposed new rates:
| Property purchase price | Residential rate | Investment rate |
|---|---|---|
| Up to £40,000 | 0% | 0% |
| The next £85,000 (£40,001 to £125,000) | 0% | 3% |
| The next £125,000 (£125,001 to £250,000) | 2% | 5% |
| The next £675,000 (£250,001 to £925,000) | 5% | 8% |
| The next £575,000 (£925,001 to £1.5 million) | 10% | 13% |
| The remaining amount (£1.5 million) | 12% | 15% |
A property investor exchanges contracts on a house purchase of £275,000. The SDLT on the property at the new rates is calculated as follows:
| Charge | New rate |
|---|---|
| 0% on the first £40,000 | £0 |
| 3% on the next £85,000 | £2,550 |
| 5% on the next £125,000 | £6,250 |
| 8% on the final £25,000 | £2,000 |
| Total Stamp Duty land Tax: | £10,800 |
The same calculation at the old stamp duty rates would be:
| Charge | Old rate |
|---|---|
| 0% on the first £125,000 | £0 |
| 2% on the next £125,000 | £2,500 |
| 5% on the final £25,000 | £1,250 |
| Total Stamp Duty land Tax: | £3,750 |
The calculation shows under the new rates, a property investor will pay an extra £7.050 on the purchase of a property
Tax aimed at cash buyers
“More homes are bought as buy-to-lets or second homes,” said Osborne in Parliament.
“Many are cash purchases that unaffected by the restrictions I introduced on mortgage interest relief; and many of them are bought by those who aren’t resident in this country.
Frankly, people buying a home to let should not be squeezing out families who can’t afford a home to buy.
So I am introducing new rates of Stamp Duty that will be 3% higher on the purchase of additional properties like buy-to-lets and second homes.”
The new tax is due in April 2016.
Osborne hopes the new tax rates will raise almost £1 billion by 2021 for reinvesting in building affordable homes in places such as Cornwall, where many local people struggle to buy a home.
