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A key date for landlords and those considering buying investment properties or a second home is fast approaching – 31 March 2016.

New rates of Stamp Duty

Although the legislation is yet to be published (and is only likely to be published a couple of weeks before it comes into force), if it is enacted in its currently proposed form, an additional 3% of stamp duty will be payable on ‘additional properties’ purchased after 31 March 2016.

The higher rate will apply to all additional purchases completed on or after 1 April 2016 (unless exchange took place before 26 November 2015), with the new rates proposed as set out below:

Property value band Basic SDLT rate SDLT rate on additional properties
£0-125,000 0% 3% (except for properties costing less than £40,000 on which the rate is 0%)
Over £125,000 to £250,000 2% 5%
Over £250,000 to £925,000 5% 8%
Over £925,000 to £1.5 million 10% 13%
Over £1.5 million 12% 15%

 

The proposed new rates would have a considerable impact on investment properties, for example, a £160,000 buy-to-let property will currently attract Stamp Duty of £700, but under the new legislation that amount would increase significantly to £5,500. 

Proposed exemption for limited companies

Many landlords are now setting up limited companies rather than continuing to buy property in their own personal names, because it is proposed that companies already holding more than 15 properties will be exempt from the new Stamp Duty rates.

Additionally, even if a company is incorporated after 31 March 2016 or holds less than 15 properties, the individuals behind that company might still decide to buy property through a company due to the benefits of mortgage interest relief. The proposed changes will see mortgage interest relief on personal transactions reduced to the basic rate of tax from April 2017, whereas Companies will still be able to get mortgage interest relief at their marginal rate (which may be higher than the basic rate of 20 per cent).

Other exemptions

Additional exemptions proposed under the legislation include:

  • Caravans and houseboats – currently, anyone buying a caravan, mobile home or houseboat does not have to pay stamp duty and it is proposed this exclusion will remain.
  • Property worth less than £40,000 – it is proposed (strangely) that, whilst property purchases below £40,000 are liable, it won’t have to be paid. The consultation says that ‘transactions under £40,000 do not require a tax return to be filed with HMRC and are not subject to the higher rates’ and residential properties (including a tenancy or lease of a residential property) worth less than £40,000 will not be taken into account when determining if an additional residential property is being purchased.
  • Social landlords  charities and registered social landlords will continue to be exempt from stamp duty. 
  • Individual ‘bulk buys’ of 15 of more properties  –  the government is currently consulting on whether individuals making bulk purchases of 15 or more properties should be excluded from the extra charge.

Expert legal advice

If you’re a landlord, you buy investment property and would like advice regarding the proposed additional rates of Stamp Duty land tax or want to know what might constitute an ‘additional property’, please call our team of specialist Commercial Property lawyers today using one of the numbers below.

If you’re an existing company and would like advice on buying properties, or a landlord who would like advice on incorporating a company, please call Toby Preston in our Corporate team on 0116 2045 327 or email tbpreston@braybray.co.uk