These buy-to let landlords were pumping money into the economy through taxation on the rent being charged, but also pushing the first time-buyer out by snaffling the properties they would be interested in, and then charging them to live there.
The initial fear was that Osborne’s plan of introducing a specific stamp duty surcharge for investors or second home-buyers would flip the other way, and crash the buy-to-let market as they decided buying wasn’t worth it. Unsurprisingly, in the run-up to the change’s introduction on April 1, investors, solicitors and brokers worked through the clock to complete second home purchases as March ebbed away, and therefore avoid charges.
However, from the government’s point of view, the change paid off – not that Osborne was there to see it, of course. According to HMRC data the Inland Revenue has made £670 million from the rise in stamp duty from second homes since April, equating to 86,400 transactions. So seemingly, although the change has been onerous, it hasn’t been enough to put off wannabe landlords or investors from pursuing additional properties.
To know that one has to take a step backwards, and look at stamp duty as a whole for all buyers. The Stamp Duty Land Tax is a government tax, imposed on properties above a certain value in the UK (except Scotland, where one pays the Land and Buildings Transaction Tax instead). This applies to anyone buying a home that costs more than £125,000.
Stamp duty rates vary, depending on the actual value of the home. For any property costing between £125,001 and £250,000, the tax duty is 2%. That tax is imposed on the value over the lower threshold. So, for example, a property costing £130,000 would incur stamp duty of £100 – the first £125,000 is not taxed, but the remaining £5,000 is taxed at 2%, giving a value of £100.
From £250,001 to £925,000 the tax rises to 5%, and above this are taxes of 10% (up to £1.5m) and 12% for anything above. These taxes apply for people buying a home, and then intending to use it for their own residential use.
They replaced a previous version in the autumn 2014, which was harsher and imposed on the total value of the home, meaning that people desperately tried to buy homes within certain thresholds to save themselves thousands of pounds. For example, an extra pound on a home, to take it from £125,000 to £125,001, would have resulted in no stamp duty for the former and £1,250 for the latter. Hardly fair, and thankfully gone.
The new changes also affected those buying second homes, but they also had an additional tax – the aforementioned additional property tax. These apply to all second homes above the value of £40,000, not just properties costing £125,000 or more – therefore, those landlords busily hoovering up a host of cheaper properties below this value, and then renting them out, suddenly had a new charge not faced by the young couple desperate to get their first home. These additional charges also applied worldwide, and to joint ownership. So if you already own a home in the UK and are thinking of buying a holiday home in Florida to share with friends, or joint ownership with your retiring parents of a flat in Benidorm, the charge applies.
Essentially it is another 3% loaded onto the existing rate of the stamp duty – meaning that homes below £125,000 are taxed at 3%; 5% for homes between £125,001 and £250,000; and so on.
For example, let’s take the example of the £130,000 home mentioned above, for which we know that we’re paying £100 stamp duty for a first-time, residential home.
The additional tax for someone buying the same property as a second home would see the first £125,000 charged at 3% interest, and the remaining £5,000 taxed at 5%. That equates to £3,750 and £250, combining for a total of £4,000 of stamp duty – quite a rise from the pre-change £100! We might not feel too sorry for someone who can afford to spend £2m on a second home, but take a look at the difference in the new structure – from stamp duty of £153,750 before April 1, to £213,750 now.
There are a large number of other ramifications to the new rates. For example, it’s not uncommon for people to move from one property to another, but be stuck owning their old, empty, home for several months or years before it sells – thereby owning two homes simultaneously. Should that happen, you’ll need to pay stamp duty on the new home, but the good news is that you can later claim this back – but make sure it’s done within three months.
Other considerations might arise if you are buying as a duo where one person already owns a home but the other doesn’t; if you are going through a divorce and your name stays on the deeds of your old home until proceedings are finalised; or if you inherit the land. The simple advice is to do your research before buying so that you are not hit with a nasty and surprising bill down the line – take heed of articles such as this, but also simply ask government advisors or those helping the house sale to proceed. If you even think there’s a remote chance that what you are doing constitutes buying a second home, then make sure you’re fully aware of the possibilities before moving forward.