The new surcharge will have to be paid by everyone buying a second property – this applies whether the home is being bought as a second property to rent out (buy-to-let) or buying a second property for themselves (for instance, a holiday home). The new thresholds are as follows:
Property value & buy-to-let charge
£0 - £125,000 - 3%
£125,001 - £250,000 - 5%
£250,001 - £925,000 - 8%
£925,001 - £1.5 million - 13%
The new charges work on a tiered basis and apply on top of the existing Stamp Duty costs meaning that a property in London will now cost significantly more than it would have previously and significantly more than a property almost anywhere else in the country.
The 3% bonus tax will become a fact of life.
The increased charge does not apply if the new residence is your main residence but you cannot just declare this, you have to actually get rid of your other residence, either by selling it or gifting it. It is worth noting at this point that simply gifting a property to a family member or setting up a limited company to circumvent regulations will not be an option.
If you wish to avoid the charge, or have your money reimbursed, by selling your home then this process must be completed within 36 months. However, for the vast majority of buy-to-let landlords this will not be an option and the 3% bonus tax will become a fact of life.
The National Association of Estate Agents have confirmed that the months leading up to the April changes saw demand surge to a 12 year high as investors rushed to beat the clock.
Of course, it is expected that buy-to-let landlords will pass this charge on to tenants rather than accepting it as a cost of doing business. In turn, rents will increase and further disadvantage ‘Generation Rent’, making it ever more difficult for young people to save the required deposit to get on the housing ladder.
The Association of Residential Letting Agents (ARLA) says “it is likely that we’ll see the buy-to-let market drop like a stone come April and probably not pick up again until next year. This will most certainly cause rents to increase, with supply dropping, as competition for the limited availability of properties intensifies.”
ARLA is also concerned that the new charges will reduce the number of people buying and selling, thereby limiting opportunities for first time buyers.
In addition, George Osborne has continued pushing policies which the property industry is calling a “war on buy-to-let landlords”. As well as the increases in Stamp Duty, the Chancellor is planning to limit the amount of buy-to-let mortgages which are given out in the first place in a further attempt to cool the market and burst the growing bubble before it reaches critical mass. As the Chancellor said to the Treasury Committee this week: “The Bank of England and the financial policy committee have identified potential systemic risks in the large increase in the buy-to-let market…It is highly likely we will give the FPC powers over the buy-to-let market. It is possible we can do that later this year.”
This all seems worrying for a buy-to-let industry which has had it extremely good for many years – but is it a little shortsighted?
A 3% increase is a headline grabbing figure, yes, but it is a one off cost which will be subsumed by the increasing rental yields and property values predicted across much of the country. For example, house prices in Manchester are predicted to grow around 5% per year to 2020. Other Northern cities such as Leeds, Sheffield and Liverpool are expected to see similar gains over the next five years. These predicted figures are reflected across much of the UK and ensure that property remains an extremely viable investment class for all but the most short sighted of investors and it is likely that the majority of landlords will defy the increase on Stamp Duty and continue investing in property.