“If it’s the chancellor’s intention to completely eradicate buy-to-let in the UK then it’s a mystery to us why he doesn’t just come out and say so” is what Richard Lambert, chief executive of the National Landlords Associating told the BBC. This comes after Osborne’s announcement of an added surcharge on stamp duty in the Autumn Statement. But what exactly do these changes mean? We’ve explained in simple answers below, so that you’ll be prepared for the new stamp duty rates coming into effect.
The current system works by charging different rates depending on the value of the property. For example, property up to £125,000 has a 0% rate, £125,000 to £250,000 at 2% and so on. If your property was worth £195,000 then you’d pay 0% on the first £125,000 and then 2% on the remaining £70,000, meaning you pay £1400 in the current system.
Put simply, the rate change will add 3% onto each property value band, increasing the rates as seen below:
This means that our previous example of a property worth £195,000 paying £1400 stamp duty, will change to stamp duty worth £7250 (£3750 on the first £125,000 and £3500 on the remaining £70,000) which is an increase of 417.8%
The changes are set to come into effect as of April 2016. Commercial property investors with 15+ properties will be exempt. This is expected to raise an extra £1bn for the treasury by 2021. Other changes that will hit buy to let landlords will come into effect even further in the future, Capital Gains Tax in April 2019 and landlords tax relief on mortgage payments in 2017.
The death of buy to let? Increasing rent to cover these costs is going to push renting out of reach for many people, especially for those in the lower bands of property value. With the current house prices at such high levels – unaffordable for many younger people and those on low incomes – this looks to be a step in the wrong direction. Not to mention the fact that this huge rise will put people off getting involved with buy to let in the first place.
The money raised from this rise in stamp duty is to be used to help home-buyers in England, extend the Help to Buy scheme and give the government more money to build affordable housing for everyone.
That’s the plan, at least.
If you already have a buy to let property: be prepared, calculate now what you will be paying when the rates change and see how this will change how you rent your property and how your income will be effected. Make sure your tenants are aware of any changes you will make to help cope.
If you’re thinking of trying a buy to let scheme: now is the time to do it! As you can see from the example, the stamp duty at the moment is miles cheaper than what it will be by April next year. Creating a Buy to Let scheme is not for the faint hearted. It takes a lot of investment and commitment for the long haul. You need to be 100% certain that you can work on a Buy to Let scheme in the long term, and have the support in place to stay financially stable.
Active Brokers can help you. By taking care of the basic finances for you, we can make sure you’re paying a fairly priced Buy to Let mortgage which will fit the property and location you plan to rent in. We take care of the forms and important finances to find you the best quote for the mortgage so you can focus on planning the details and not worry so much about the money. Read our guide to get a better idea on what a Buy to Let mortgage entails.