George Osborne announced proposed changes to the Stamp Duty Land Tax (SDLT) treatment of second homes and additional buy-to-let residential dwellings in the Government’s Autumn Spending Review in 2015. The changes came as part of the Government’s continued policy to try to create a “level playing field” in Britain’s “under-supplied property market”.
Since Mr Osborne’s 2013 budget speech, when he announced the introduction of the first ‘Help to Buy’ scheme, the Government have made increasing the level of home ownership a key objective of its time in office. These latest changes are introduced alongside the Government’s removal of a landlord’s full mortgage interest tax relief, to be fully implemented by 2020, and which are expected to have a significant impact on those landlords with highly leveraged buy-to-let rental properties.
The SDLT changes come in to force from 1 April 2016, and will see the SDLT treatment of second homes and buy-to-let residential properties increase by an additional 3% tax on top of the existing tax payable for that particular tax band. The changes will apply to purchases where completion takes place on or after 1 April 2016, no matter when contracts were exchanged (the exception being where contracts have been exchanged on or before 25 November 2015).
The Government has said that it will use some of the additional tax collected to provide £60 million for communities in England where the impact of second homes is particularly acute, together with doubling the affordable housing budget. By its own estimation the Government expect to raise more than £630 million in additional tax in the year following 1 April 2016, growing to more than £855 million by 2021.
Understandably the changes have proven highly controversial, with the National Landlords Association estimating that landlords could sell as many as 500,000 residential properties in the twelve months following the introduction of the new tax treatment as landlords look to streamline their portfolios or leave the market altogether. A recent YouGov survey was less pessimistic, claiming that those landlords that had taken part in the survey had indicated that they had built a sufficient degree of resilience into their business model to weather the effects of the changes.
Regardless of the wider effects on the buy-to-let market, anyone intending to purchase an additional home or residential rental investment property will need to factor in the additional costs associated with the higher rate of SDLT when budgeting for their purchase.
For more information please contact Carl Langley