‘Catastrophe’ Budget: Agents and landlords get to grips with 3% more on BTL Stamp Duty

The industry is trying to assimilate the changes announced in yesterday’s Budget Statement whereby buy-to-let investors and those purchasing second homes are to be hit with a 3% increase in Stamp Duty Land Tax.

The changes were yesterday described by ARLA as a catastrophe for the private rented sector while accountancy firm Smith & Williamson said they would be the “nail in the coffin” for the buy-to-let market.

Shares yesterday slid in listed agents Countrywide and Foxtons.

Franchise chain Martin & Co last night said the changes were “absolutely not catastrophic”, but admitted they were an unwelcome surprise.

For an average buy-to-let purchase of £184,000, it will mean an extra Stamp Duty Land Tax bill of £5,520 from next April.

For the buyer of a rental property or a second home priced at £300,000, it means an extra £9,000 – bringing the total SDLT bill to £14,000.

One immediate implication is that first-time buyers could have an advantage over investors.

A second is that buy-to-let properties changing hands between investors may reduce in price.

A third possibility is that landlords who pay extra Stamp Duty on their properties will simply pass the increase along to tenants.

A fourth possibility, spelled out by Doug Crawford of conveyancing firm My Home Move, is that the housing market will be “turbo-charged” in the short term as landlords and second home owners embark on a buying spree.

However, others think it more likely that buy-to-let landlords will start selling up now, in order to get out of an increasingly hostile market, including  other Budget Statement announcements about speeded-up times to settle their tax bills.

The Chancellor’s changes mean that each SDLT band will go up by 3% for buy-to-let properties as follows from next April 1:

  • Property purchase of £40,000 to £125,000 – Stamp Duty will be levied at 3% (currently 0%)
  • Up to £250,000 – 5% (currently 2%)
  • Up to £925,000 – 8% (currently 5%)
  • Up to £1.5m – 13% (currently 10%)
  • Over £1.5m – 15% (currently 12%).

In other changes announced by George Osborne, buy-to-let and second home purchasers will have less time to settle their Stamp Duty bill, reduced from 30 days to just 14 as from 2019.

At the same time, anyone selling a buy-to-let or second property will have to settle their Capital Gains Tax bill within 30 days, rather than anything up to 21 months after disposal, depending on when the sale occurs.

Mike Chapman at Knill James Chartered Accountants said there could be “major consequences for the residential property market”.

He said: Clearly landlords who have maximised their borrowings with a view to enjoying capital growth may now seek to restrict their financial exposure by disposing of parts of their property portfolios.

“Where such properties are standing at a gain, disposal before the CGT acceleration is due will clearly be advisable.”

The increase in Stamp Duty is expected to raise £30m in 2015/16; £625m in 2016/17; £700m in 2017/18; £760m in 2018/19; and £880m in 2020/21.

The money raised will be reinvested into building new homes in areas such as London, the Lake District and Cornwall, where local people have been priced out.

Andy Frankish, of the Mortgage Advice Bureau, said: “Imposing higher Stamp Duty on buy-to-let properties will act as a further disincentive to landlords following the changes to mortgage tax relief announced in the previous Budget, and will be a bitter pill to swallow.

“However, for residential buyers that are currently competing with investors for desirable properties – particularly new-builds – this will act as a leveller to ensure they aren’t missing out on becoming home owners because of buy-to-let.

“By imposing this change, the Government have made their stance in support of home ownership very clear.”

Peter Williams, of the Intermediary Mortgage Lenders Association, said: “The Government must be very careful not to go too far and overly constrain the private rental sector, which performs an essential role in the housing market.

“For all their new initiatives, successive Governments have a poor track record of delivering the required number of new homes, and a healthy private rental sector is vital for those either needing to rent or choosing to do so.”

Notably, while going after private landlords, Osborne has so far protected corporate bodies or funds investing in the private rented sector. Larger firms owning 15 or more rental properties will not have to pay the higher rates, although this is subject to consultation.

 

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37 Comments

  1. Paul House

    I think this is a bit more then encouraging home ownership and discouraging buy to let investors.

    I thin many people may struggle to sell their property next year so having to move on, for whatever reason,  may mean more people have to rent then sell meaning there won’t be that much less available letting stock.

    It makes you wonder if the govt are now openly promoting a house price correction agenda meaning that we all spend less on our housing requirements, if so then this is possibly the start of a long process.

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    1. Trevor Mealham

      Yes for a while Paul. Agree.

      It started with Help to Buy, that most agents haven’t really used. But in real terms HTB helps the likes of FTB’s compete with BTL investors, gaining reduced finance for the first 5 years.

      Over the next 4-5 years there are several bits of legislation that will shift large numbers of BTL listings to homes to sell that will likely become primary housing stock for owners again.

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  2. Trevor Mealham

    The timeline for landlords is * April 2016 – SD Tax see’s massive hikes * 2017 to 2020 – BTM mortgage offset relief gets hit, rental income gross takes place of net, worsening year by year * April 2018 – The 2011 Energy Act kicks in next stage where minimal standards estimate that 10% of res and 18-20% of commercial premises become unlawful to let I estimate a 30% shift of BTL properties changing hands due to legislation changes coming in.

    Letting agents – its time to start opening sales departments (that is if you don’t already have one). The shift is coming.

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    1. Robert May

      I am not sure if you are the one who put him up to this Trevor what with you being in Whitehall more than you’re in your own office but 3%sd isn’t the way to achieve what he is trying to achieve; freeing up  sales stock.  It might  put pay to the over 55’s pillaging under performing pension pots but that is it. BTL investors aren’t going to off load their portfolios; they’ll end up with a heap of cash on which inheritance tax is payable at 40%.

       

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      1. Trevor Mealham

        Nothing to do with me Robert. But 2017 – 2020 hits high LTV’s on BTL mortgages, so many may off load. Equally props below energy levels will become unlawful to let.

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  3. Robert May

    That’s what they want you to think! If you put the 3% increase in context with capital appreciation on property which has, since July 1996, averaged 6.6% per annum, the extra 3% is paid off by the capital growth during the first 6 month tenancy.

    Mr Osborne is obviously trying to scare and deter BTL investment but  I can’t see his tactics working on anyone but the short sighted investor.   An extra 3% is an inconvenience but given the  long term  nature of property investment it should be considered more of a philanthropic gift to the nation, helping to pay off Messers (sic) Blair and Brown’s spending addiction than a weapon of mass destruction (irony intended)

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    1. ElTel

      Well said Robert. Your comment puts the unwelcome tax hike into true perspective.

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      1. mat109

        A £100k property in 1996 is now ~£200k. In another 20 years, at 6.6% growth it will be £750k.

        Another twenty years after that it will be £2.5M.

        Do you really think that’s sustainable? Don’t you think (as is happening now) the political pressure from those who don’t or can’t own will just spill over?

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        1. Robert May

          1.066 power 19 is 3.368 so £100k becomes  £336,800,  in 20 years it becomes £12 million and in 40, £43 million.

          Is is sustainable? I can’t see how but I can’t see where all the people in those properties would go to  free up homes for the population growth demand that is  fuelling the relentless inflation of prices.

          Without doubt there is political pressure from  a generation who want somewhere to live and  hopefully own away from their family home, protesting about the problem won’t solve the problem so while Mr Osborn thinks his 3% is going to put a brake on BTL investment, demand inflation says it is the wrong tactic to use to free up homes but is a great way to tax the people able to purchase. A very subtle but unfair win, win,  lose.

           

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          1. mat109

            Protesting about the problem will absolutely help – there has been historically a very strong lobby political incentive for prices continuing to go up ad infinitum.

            G.O.’s 3% brake is going directly onto new investment in housing.

            As you’ve noted, there is still no shortage of people ready to pile into BTL at the moment.

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            1. Robert May

              The problem with protesting is group think; protesters stop hearing.  As was demonstrated by the HPC crew a few years ago 2008/2009 everyone one is out to fleece them, the system is wrong, it’s OK for Babyboomers etc

              Osborne hasn’t applied a brake, if he has they will quickly overheat and fade.

              I just spoke to a client worried about  this, my advice was to  buy.

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          2. smile please

            Osbourne knows it will not curb the British appetite to invest in property, he knows more and more people are plouging into BTL and when banks get back to silly lending (they will, this is a vicious cycle) even more will be looking to pile in, driving prices up further and further.

            Its all about raising revenue. If i was to take my pension pot next year would not deter me from investing in property, just another expense i will pass onto my tenant.

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            1. mat109

              There’s only so much passing onto a tenant a market can bear. Make no mistake – if rents go up:
              1) Tenants won’t be able to afford them, so who pays?

              Everyone harks on about supply and demand and ‘a basic understanding of economics’, but an economics A level will tell you that in a supply constrained market, where prices are already at a maximum, it is entirely possible to levy additional taxes on suppliers – landlords – without the costs being passed to customers – tenants.

              2) The political lobbying for rent controls WILL intensify.

              We do live in a democracy – there are many upsides – but one of the downsides of it is “a dictatorship of the majority”.

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              1. Romain

                Ah but rents are not yet at the maximum the market will bear. Many, if not most, landlords are actually not increasing rents as they should and most tenants still have the financial means to adapt to quite higher rents.

                Tenants will therefore end paying for GO policies.

                Price control when the problem is a supply shortage is economical madness and would only make the shortage worse and hurt vulnerable tenants.

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        2. Trevor Mealham

          Well said Matt – wages aren’t increasing that fast, not even for tenants 🙂

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    2. Trevor Mealham

      Properties have increased Robert, so dead right capital equity has increased. But buy the same scenario’s in 2016 rather than 1996 when interest rates are rock bottom. Then see gov/B of E introduce higher BTL mortgage rates and it throws previous equations out.

      A few months back Gov also put out a consultation on Rogue Landlords – the games a changing my friend. …..

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      1. Robert May

        The government can’t afford for honest and clean PRS provision to change. They have already built a ‘right to buy’ flaw into housing association provision that will introduce  serious inequities into buying property; the less fortunate will leap frog   the more fortunate and so remove incentive to  bust a gut to get on.

        Osborne is creating a system that favours builders, institutional buyers, housing association and housing association tenants. a nice  symbiotic merry-go-round of profit for some

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  4. smile please

    We should have seen it coming. I mean the change last year was so sensible and so welcome after such a long time, we could not belive it! So give it a year and then hit it hard!

    This government know with pension reforms people are piling into property. They know people will accept as much as they say they will not.

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  5. Richardcg

    Is the rule regarding not being liable for SDLT when buying from a company new?

    I bought a house a few months ago from a company and I’m now wondering if I should have paid it.

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  6. LandlordsandLetting

    I discussed this growing ‘demonization of the private landlord’ in my blog about a month ago: http://www.landlordsandletting.co.uk/Blog/the-demonisation-of-the-private-landlord/

    Furthermore, reading the last passage in the above article I see it even more confirms what I was saying…“Notably, while going after private landlords, Osborne has so far protected corporate bodies or funds investing in the private rented sector. Larger firms owning 15 or more rental properties will not have to pay the higher rates, although this is subject to consultation.”

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  7. Typhoon

    Sadly the tenants will ultimately pay, as there will inevitably be a reduction in the numbers of properties to rent with this and the previously announced reductions in tax allowances on loans for BTL and expenses. I doubt the suggested explosion of buyers getting in before April 2016 will occur, as many are now looking at BTL as an unexciting investment.

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  8. LD1602

    Questions…

    How does this affect developer purchasers buying in their own name? For refurbishment and re-sale rather than to let? Surely this will be counter productive in bringing new homes to market.

    What’s to stop someone buying Residential and switching to BTL 6 months down the line?

    Who will be policing this (estate agents and Solicitor’s I suppose).

     

     

     

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    1. smile please

      Its not an estate agents job to police this.

      Thats what legal professional and HMRC are for.

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      1. Robert May

        HMRC are and have been failing to collect through SA105 all of the Tax due on rental income. They have no idea how many Landlords should be completing SA105 so can not have any idea  what they should be collecting.

        I keep telling them  how to  to calculate it but the job loses of overhauling a system based on an infinite number of monkeys is probably unpalatable to the civil service unions.

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    2. Steve From Leicester

      “What’s to stop someone buying Residential and switching to BTL 6 months down the line?”

      The answer is that it applies to the purchase of a  buy-to-let or a second home. So if you did that you’d be clobbered because you were buying a second home.

       

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  9. Property Paddy

    OK cheesed off with this.

    A: How many properties are un occupied in this country?

    B: How many people are on income support ?

    C: Are A & B in the same geographic areas ?

    Why cant a politician not see we don’t need to build new homes in the south east, we don’t need to put massive financial restraints on property to scare off BTL.

    How about he puts the money, investment, infrastructure and massive subsidies for businesses to move away from London and south east to these poverty stricken areas. Then he wouldn’t need to screw with the this constipating stamp duty that’s going to reek havoc on the South East property market.

    Yesterday I said the London market will stagnate for up to 36 months now I think you London chaps are in for a bigger slow down. I blame Thatcher, Blair and now Osborne for all of this. Very short sighted indeed.

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    1. wilko

      “Yesterday I said the London market will stagnate for up to 36 months now I think you London chaps are in for a bigger slow down”…..

      The problem with central London is not the amount of property being built, it’s an over supply of top end properties – with not enough people who can afford them.

      I would agree that this may take a lot longer to adjust than other areas.

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  10. albere billachip

    PIE please get you maths right when stating  – For an average buy-to-let purchase of £184,000, it will mean an extra Stamp Duty Land Tax bill of £5,520 from next April.

    wrong – the new SDLT on a purchase of £184,000 from April will be £5,500; it is currently £1,180 and therefore a difference of £4,320.

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  11. Gump

    I’m all for it. Although they should of made it 5%

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  12. benbird

    What about 3rd, 4th 5th homes etc?

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    1. Trevor Mealham

      @benbird – post primary – comes secondary, be it no. 2-3-4-5-999

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  13. philr

    How will this affect people who have a mortgage on one property they currently live in with family, but want to buy another to move to and not sell the original, as there will still be family members living there? Will they be stung by it too?

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    1. smile please

      Yes, unless the mortgage is in separate names.

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      1. philr

        OK, then with another slight complication, the original property is in one name, but the new one will be in two, one of whom is a first time buyer. Will it be discounted, or because the first person is on two mortgages will it still be clawed in?

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        1. Trevor Mealham

          No doubt come May/June 2016 we’ll know  🙂

          Then bits like this dealt with by different accountants and solicitors will show flaws and ways round, as normally happens to a level.

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        2. smile please

          Second property, and these things are always found in favor of HMRC so extra 3%

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  14. Will

    If less rentable property on the market  with same demand higher rents result. Will Osborne’s plan work?

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