As the mass panic grows for investors wanting to purchase before April's tax increase I wanted to do a little more research on the topic and share some of my findings.

This could be significant as by-to-let landlords as people buying an additional property, including buy-to-let or second homes, will face a 3 percentage point surcharge on stamp duty rates from April 2016.

What stamp duty rate will I pay?

PURCHASE PRICE CURRENT STAMP DUTY RATE (1) NEW STAMP DUTY RATE FOR ADDITIONAL PROPERTIES (1) Up to £125,000 0% 3% (2) £125,000.01 - £250,000 2% 5% £250,000.01 - £925,000 5% 8% £925,000.01 - £1,500,000 10% 13% £1,500,000.01+ 12% 15%

A common example used is on a purchase of a £275,000 stamp duty will jump from £3,750 to £12,000. This example is a little alarming for our area given the best buy-to-let yields are between £180,000 to £250,000 (not withstanding capital growth). 

HMRC has issued some guidance on how to check if a purchase of a property by an individual is liable for the higher rates: 

For more information visit the HMRC website.

Our financial partners over at Elite Financial Services has kindly ran through some examples for us:

Example 1:

An additional residential property is purchased for £200,000. SDLT is calculated as follows:

3% on the first £125,000 = £3,750

5% on the remaining £75,000 (the portion between £125,000 and £200,000) = £3,750

The total SDLT due is therefore: £3,750 + £3,750 = £7,500

Note that there a number of complications when it comes to whether the new purchase is classed as additional or not, which relate to whether the buyers are REPLACING their main residence:

Example 2:

X sells a property which was her main residence and purchases a new residential property. At the end of the day of the transaction she has one property, so X will not pay the higher rates of SDLT.

 Example 3:

Y is purchasing his first property. At the end of the day of the transaction he owns one property, so he will not pay the higher rates of SDLT. This is regardless of whether Y intends to use it as a main residence or, for example, a rental property.

Example 4:

K, who lives in rented accommodation, sells the only residential property he owns, a buy-to-let, and purchases another buy-to-let. At the end of the day of the transaction he owns one property, so he will not pay the higher rates of SDLT.

There are also implications where clients split the sale of their main residence from the purchase of a new one, whereupon they must complete the sale within 18 months of their purchase in order to be eligible for a refund of the higher rate paid:

Example 5:

Z already owns a main residence and is purchasing a property that will be used as a buy-to-let. At the end of the day of the transaction she owns two properties and has not replaced her main residence, so the higher rates will apply.

Example 6:

A owns both a main residence and a second home. She sells her main residence and purchases a new one. Although she has two properties at the end of the day of the transaction, she has replaced her main residence so the higher rates will not apply.

Example 7:

H owns a main residence. He is purchasing a new main residence, but rather than selling his previous main residence he will rent it out. At the end of the day of the transaction H owns two properties and is not replacing a main residence (as he is not selling his previous main residence), so the higher rates will apply.

The higher rates will only apply to purchases of additional residential property which complete on or after 1 April 2016. If contracts are exchanged after 25 November 2015 then the higher rates will apply if the purchase is completed on or after 1 April 2016.

However, if contracts were exchanged on or before 25 November 2015 but not completed until on or after 1 April 2016, the higher rates will not apply.

As always, ask us if you’re not sure.

are   property will  ould be significant as by-to-let landlords as people buying an additional property, including buy-to-let or second homes, will face a 3 percentage point surcharge on stamp duty rates from April 2016. What stamp duty rate will I pay? 

To have a chat in more detail talk to Phil Wadham at Elite Financial & Mortgage Services Ltd
Tel: 01202 650077.