The Two Property Tax
Stamp Duty Tax Changes for 2 or more properties.
HM Treasury produced a report on the 28th December outlining plans for a higher stamp duty to be charged on second properties including holiday homes, pied-a-terre and buy to let. The extra charge is 3% on top of any current banding rate. The charge will also apply to property brought in the name of companies. The new tax will take effect from 1st April 2016 for residential properties in England, Wales & Northern Ireland..
The consultation on the changes has now ended (1st February 2016) and the finalised changes will be announced in the March 2016 Budget.
Why make the changes?
It seems only fair to charge clients purchasing a property as a commercial transaction (as in the case of buy to let) higher rates of tax. The changes will bring an increase in taxes into HMRC of course and in their report they announced they would invest some £60 Million into helping communities acutely affected by the ownership of second homes.
The increased tax, it is hoped, will push more homes into the ownership of people only owning one property and as their main residence. The report acknowledges the fact that many first time buyers are competing with property investors for the same property.
Will the changes have an impact?
The move will likely see off some first time landlords such as those that were previously, when moving home, holding on to their existing property and letting it out. Property investment should be viewed as a long term investment providing capital gains as well as an income where rented out.
With rates of property inflation above 3% in many parts of the UK a serious investor will not be put off by the new tax changes. The maths will make owning a second property for some too expensive and only those that are serious about property investment and appreciate that property is a long term investment will persevere.
We deal with a lot of clients that have not been able to sell their current property before they buy their new main residence and in this case the higher rate is payable BUT is refunded so long as the original main residence is sold within 18 months.
Married or civil partnership couples are treated as one so if your spouse owns a buy to let and you are buying your first residential home jointly, the tax will apply. Equally if you are buying your first home on your own the higher tax will apply – You and your partner are treated as one, that’s harsh!
There are more complicated scenarios and you should consult your solicitor or conveyancer to confirm what stamp duty you will pay.
Property valued at under £40,000 is not subject to these rules. Neither are;
- House boats
- Mobile Homes
- Commercial property (such as shops or offices)
- Agricultural land
- Bare land (even where that land may subsequently be used for residential purposes)
- Any other land or property which is not used as a residence
- 6 or more residential properties bought in a single transaction (reduced rates apply – Multiple dwellings relief)
Completing on property in time.
The government estimates that 90% of residential property transactions will not be affected by the higher tax but for those that will the race is on to complete before the changes take effect.
From our own data, the average time taken to secure a mortgage offer is 3 weeks but can be as quick as a week in the case of a remortgage. With 2 months now left to complete on a property there is a definite rush on to complete before the 1st April deadline and where a client needs a mortgage we are doing all we can to ensure that our clients meet the deadline. Working with a good solicitor is essential too but unfortunately where your purchase is part of a chain of transactions the timings may be out of your hands.