Property investors and those in the process of purchasing a second home are rushing to complete their purchases before changes to Stamp Duty Land Tax (SDLT) come into effect. In the period over the end of 2015 and beginning of 2016 estate agents have reported a marked increase in interest from property investors trying to buy homes ahead of the government’s new stamp duty surcharge on second homes. The Royal Institution of Chartered Surveyors (Rics) reported in a recent monthly survey that the market was “unusually buoyant” in December. This has reported continued into 2016 as well.
The increase in SDLT for Buy-to-Let landlords and those buying a second home are due to be brought in on 1 April 2016 and buyers are hoping to complete their purchases before this date to avoid the additional costs. The proposed the changes mean that there will be a 3% surcharge on each level of SDLT for residential property purchases.
The surcharge will apply to residential property purchases where the property is being purchased as a buy-to-let and results in the buyer owning more than one residential property. There are some limited exceptions expected however. These include where the purchase is to replace your main residential home which is being sold; where contracts were exchanged before 25 November 2015; or if the property value is below £40,000. In these circumstances the current rates will continue to be applied.
Where the higher rates do apply this will increase the existing residential SDLT by 3% at each level, e.g. the existing 0% rate for properties under £125,000 will be 3%; the 2% rate for properties between £125,000 and £250,000 will be 5%; etc.
This can mean a substantial additional cost to the purchase price. For example, where an additional residential property is purchased for £200,000 the SDLT will be £7,500 under the upcoming rates, compared to only £1,500 under the current rates. And this is why purchasers are eager to complete before the changes take effect.
Final rules will be announced in the budget on 16th March but it is expected the increased rates will be in place on 1st April.