Stamp Duty Increases
Stamp duty changes have resulted in thousands of prospective property purchases up and down the country being rushed through before the deadline of 31st March 2016. After this date you will pay 3% extra on top of every banding of stamp duty where you will own more than one property on completion.
Since the announcements were made at the back end of last year many of you have been rushing to get property purchases through and with less than 2 weeks to go before the deadline there are lots of transactions expected to complete before the deadline and unfortunately many that will complete after. Solicitors are now doing all they can with some apparently working over the Easter Holidays.
On a property value of £300,000 you would usually pay £5,000 but under the new tax regime the amount would total £14,000!
We have put together a handy stamp duty calculator which you can use to check what stamp duty tax you will pay on any second property brought from the 1st April.
Go Ltd or borrow less!
As well as the stamp duty tax changes there are further changes being phased in from April 2017 that will result in less mortgage interest being allowed to be offset against rental income. Higher tax payers may find that some of their investments will no longer be profitable after 2021 when mortgage interest can only be offset up to the basic 20% rate of income tax.
A potential solution will be for clients to hold property in a UK Limited company which will take them out of the individual tax regime and see them subject to corporation tax and dividend income tax instead.
Mortgage lenders have recognised this and one of the leading lenders Paragon Mortgages will currently lend more to a buy to let in the name of a Limited company than they would to a buy to let held in the name of an individual. Lenders that do lend to individuals such as BM Solutions and The Mortgage Works have already increased their rental income to loan criteria as a direct result of the increasing cost of running a buy to let property. You can now borrow less unless your loan to value is below 65% or you take a long term fixed rate.
These changes to rent to loan criteria are likely to continue as the market moves towards more Limited company buy to let lending. Each situation is different and we advise our clients to take advice from an accountant but we are seeing more and more clients being advised to go down the Ltd company buy to let route.
For more information on Limited company buy to lets click here.
Commercial Stamp Duty Changes.
The Government announced changes to commercial property stamp duty that took effect from 17th March 2016.
New rates that apply are:
- 0% to £150,000
- 2% Between £150,001 and £250,000
- 5% above £250,000
These new rates mean that buyers of commercial property worth up to £1.05 million will pay less in stamp duty.
Stamp duty rates for leasehold rent transactions will also change, with a new 2% stamp duty rate on leases with a net present value over £5 million.
For more information on commercial finance click here.