WHAT ARE THE STAMP DUTY CHANGES?
From April 2016, the purchase of additional property not intended for full-time owner-occupation will be subject to the new rates of Stamp Duty. Properties up to the value of £40,000 are exempt, but any property exceeding this amount will face the new charges, which are calculated on a tiered system based on the value of the property that falls within each of the following brackets:
- Up to £125,000 = 3%
- £125,001—£250,000 = 5%
- £250,001—£925,000 = 8%
- £925,001—£1.5m = 13%
- £1.5m+ = 15%
WHY HAS STAMP DUTY CHANGED?
Some see it as a bid to swing favour back to owner-occupiers when it comes to buying a property. Others feel that it will cease people buying up properties in the capital without living in them. Some even claim that this is Osborne’s way of curbing the current buy-to-let boom sweeping the nation.
HOW WILL THIS AFFECT THE BUY-TO-LET INVESTMENT MARKET?
Undeniably this will change the buy-to-let investment market; however, the areas that it will affect the most will be the most expensive regions of the country- London and the South East.
However, most of 2015’s buy-to-let hotspots will not see such extreme increases in prices. Regional cities, such as Manchester, Leeds and Liverpool have been lauded over the past few years for their impressive returns and affordable prices. For the most part, average properties in these regions fall into the lower tax bands.
A REAL-LIFE EXAMPLE
According to Rightmove, the average house price in London (November 2015) is £619,866 meaning that the majority of the property’s value (£369,866) would be levied against the 8% stamp duty bracket, which would ultimately equate to a massive overall Stamp Duty tax bill of £39,589. This would bring your total purchase price to an eye-watering £659,455.
Whereas Rightmove states that the average house price in the North West during November was just £171,709. This would only attract a 5% rate of stamp duty on a percentage the property’s value up to £250,000, meaning that your tax bill will be £6,085.45. This would bring your total purchase price, inclusive of stamp duty, to just £177,794—over three and a half times less than the overall cost of a property in London.
WHAT DOES THIS MEAN FOR THE FUTURE?
Going forward, people looking for the best buy-to-let investment are likely to choose regional markets first. Already these often provide strong rental returns, which when coupled with lower stamp duty rates, will only attract more attention to the regions.
According to Fionnuala Earley, Countrywide’s chief economist: “The new rates of duty will effectively increase the price investors pay, and hence reduce the yield they achieve. New landlords must do their sums more carefully to make sure returns on their investment add up.”
All-in-all, April 2016 is sure to shake up the buy-to-let investment market (especially in certain parts of the country). However, by keeping in mind a number of factors:
- Distance to transport links and amenities
- Rental demand in the area
- Is it built by trusted developers with a stellar track record?
You can be sure to still find plenty of impressively high yielding properties available.