The increase to Stamp Duty Land Tax (SDLT) for additional residential properties, recently proposed by the government, is due to be brought in on 1st April 2016. This tax hike will see 3% added on to the SDLT for buy-to-let properties and second homes and is part of the governments five point plan for housing. Its purpose is to decrease the impact buy-to-let purchases have on first time buyer getting on the property ladder.
The Government has released a consultation paper on the proposal, allowing formal responses to be made until 1st February 2016.
The additional tax will not apply to buyers of additional residential properties who exchanged contracts before 25th November 2015 but are due to complete after 1st April. Those who exchanged contracts after 25th November and complete after the 1st April will have to pay the additional 3%. Properties being purchased under £40,000 are not subject to the tax as transactions below this amount do not require a tax return to be filed with HMRC.
At the moment no stamp duty is paid on houses or flats up to £125,000, 2% is paid on the portion up to £250,000, 5% up to £925,000, 10% up to £1.5 million and 12% on anything more than this. Adding the extra 3% on top of these figures will increase the cost considerably for potential landlords.
The below example has been taken from the HM Treasury consultation paper:
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
There have been a number of issues raised, including the treatment of married couples and civil partners as a unit and unmarried couples as individuals, allowing them to buy a property under each name and avoid the additional tax. Respondents to the consultation have the opportunity to develop the policy with the final design announced at the Budget on 16th March 2016.
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