Will the Bubble Burst for Buy-To-Let?
With Spring around the corner and the new stamp duty rates for buy-to-let becoming effective in April, TV Presenter and Property Agent Rebecca Jane looks at the implications.
The new stamp duty rates for second homes means that anyone buying a second home or buy-to-let will be hit with a higher rate of stamp duty. The tax grab is designed to help ease the housing shortage, with anyone who buys additional residential property liable to pay an additional 3% in stamp duty from 1st April 2016.
The additional charge applies above the current stamp duty land tax rates, meaning there will be 3% tax to pay on homes worth up to £125,000, 5% tax on homes that cost between £125,001 and £250,000 and 8% on homes worth between £250,001 and £925,000. Homes worth up to £1.5 million will be subject to 13% stamp duty and those priced above this amount will incur a 15% charge.
It is not all bad news though. For second-home buyers who exchanged contracts before the Autumn Statement was delivered on 25th November, the higher tax rate won’t apply, even if completion is after the 1st April deadline. The other positive is that as the rules currently stand, investors can offset the additional stamp duty, along with other purchase costs, against capital gains on the property in the future. Whilst this maybe the case for now, there is no guarantee for the future.
‘The Bank of Mum and Dad’ may not be able to help from April as the changes do not spell good news. You can still be a guarantor for a loan, but a joint mortgage that requires a parent’s name on the title deed will be hit by the tax – as will couples who want to buy a property each. Married couples and civil partners will be treated as a single unit that lives together. Any additional property purchased by either person will attract the higher rates.
So are we able to invest in a buy-to-let or second home without incurring the new taxes? Only if you buy now and complete by the 1st April. The danger here is that there may be a rush and the short-term increase in demand could temporarily push up prices, before the increase hits. So my advice would be to watch the market to make sure that any temporary price increase doesn’t exceed the 3% saving made by buying quickly.
Also be aware that there are other potential tax changes on the way, with the wear-and-tear allowance for landlords of furnished properties being revamped and coming into effect in April, and an earlier deadline for paying capital gains tax on property sales.
For first-time home buyers, it’s hoped that by making buy-to-let less appealing, not to mention lucrative, demand for investment properties will fall, leaving the rungs of the property ladder accessible. Only time will tell!