Stamp Duty: What You Have to Know About the Changes

On the last day of March 2016, a bottleneck was caused in the property market as landlords rushed to get their property deals through before April 1st.

This phenomenon was reported in numerous news websites, including This Is Money, which cited reports of estate agents staying open late at night and opening early in the morning to deal with all the purchases.

The reason? The stamp duty surcharge that came into force on April 1st, 2016.

Landlords and second-home buyers were desperate to complete their purchases before the deadline, and with good reason – the surcharge is set to add thousands of pounds to the cost of buying a second property.

So now that the deadline has passed, what has changed? Here's a guide to what you need to know.

New Stamp Duty Surcharge Introduced in April

Landlords were left shocked after the Chancellor's last Autumn Statement when George Osborne announced an increase in stamp duty for second properties. The surcharge made the cost of buying a second home much more expensive – often by many thousands of pounds.

Before April 1st, 2016, the rates were the same for all properties, which was:

  • No stamp duty on the first £125,000
  • 2 per cent from £125,000 to £250,000
  • 5 per cent from £250,000 to £500,000

However, after the changes, the rates for buying a second home or buy-to-let property have increased:

  • 3 per cent from £40,000 to £125,000
  • 5 per cent from £125,000 to £250,000
  • 8 per cent from £250,000 to £500,000

This means that for a £275,000 second property, stamp duty will increase from £3,750 to £12,000.

The changes come into force for buyers of second properties or buy-to-let properties in England, Northern Ireland and Wales. And there is no exemption for investors with large portfolios, as some were hoping for.

Added to the new mortgage tax relief restrictions that will come into force next year, and changes to the 'wear and tear allowance', landlords are being hit hard.

What Will the Effects Be?

Many are now claiming that the stamp duty surcharge, along with the other changes, are making the buy-to-let market less appealing. The reasoning behind the changes was that they would open up more room for first-time buyers. But is this going to be the case?

The Association of Residential Letting Agents (ARLA) conducted its own research, and found that almost two thirds of its members expect a drop in supply of buy-to-let properties as a result.

Worryingly, almost 60% of members think that rents will go up (in London, the figure is as high as three quarters of agents). After all, landlords will have higher costs, and these could be passed onto the tenants.

In addition, if fewer landlords are tempted by the buy-to-let market, this could reduce the supply – which could further increase rents.

The Independent also ran a piece suggesting that the changes are unlikely to prevent foreign investors from buying properties in the UK due to the weak pound.

Calculate the Costs Carefully

It is unclear how much of an effect the stamp duty changes will have on the buy-to-let market. This has obviously been a big blow to landlords, but only time will tell whether it has put people off investing in buy-to-let.

If you are a landlord and you are still considering investing in property, just make sure you factor in the new costs involved in purchasing a property so that you can work out whether a property still makes for a good investment.