Will 3% Ruin The Property Market?

21st April 2016 by

If you were unaware, the Government imposed Stamp Duty Land Tax (SDLT) changes on anyone buying a second home.  As of 1st April 2016, the SDLT rate on purchasing/investing in a second property has increased. For example, before 1st April 2016, if you were investing in a property with the value of over £250,001 you would have to pay an SDLT rate of 5%, after the 1st April 2016 the rate rises to 8%.  To put this in perspective, the average house price in Brighton is £352,037, you would pay £17,851.85 before the 1st April 2016. 

After this date the amount would rise to £28,562.96. For you as an investor this adds roughly an extra £11,000 in tax that you would pay to the government. All other rates are shown in the table below:

Band Existing residential SDLT rate New additional property SDLT rate
£0 – £125k 0% 3%
£125k – £250k 2% 5%
£250k – £925k 5% 8%
£925k – £1.5m 10% 13%
£1.5m+ 12% 15%


Now don’t be alarmed, if you are person that currently owns more than one property and you are looking to upsize or downsize your main property.  The Treasury has confirmed that the increased SDLT rate will not apply to you even if you have bought a second property and have not sold your previous property. At the time you purchase that second main property you will still have to pay the increased SDLT rate, but you have 18 months in which to sell your previous property and that will make you eligible to claim a refund on the increased rate.

Alternatively if you have multiple properties and you sell your main property you will have 18 months in which to purchase a new main property without paying the higher rate.  After the 18 month period, any purchase will be eligible to the increased SDLT rate.

There are a number instances where unfortunately you will be eligible to pay the increased rate and not claim a refund.  The Treasury has confirmed that married couples and civil partners will be treated as “one unit” and any additional property purchased by either party will be eligible for the new increased rate.  Parents buying property jointly with their children will face the increased SDLT rate, but parents that give money for a deposit or act as guarantor for a mortgage will not face the increased rate.

The only bit of good news as the rules stand, an investor that has paid the increased SDLT rate along with the purchase price of the property will be able to take this away from the sale price, potentially reducing the property gains tax on the future sale of the property.

What does this mean for the buy to let market?

You would argue that higher costs mean less market activity but stranger things have happened in the property market.  The Governments plan is to make it harder for people to own more than one property while given significant incentives and tax breaks to people buying their first property.  Buy to let mortgages have increased by 22% in January 2016 compared to January 2015 with February expected to be even higher as buy to let landlords rush to meet the deadline.

But does this mean the market is due to slow down, Nazish Ahmad, Partner in Residential Brighton comments: “The chancellor has announced changes to be made to the stamp duty payable on second homes and buy-to-let properties. It is proposed that these buyers will have to pay 3% on the first £125,000 and 5% between 125,001 to £250,000 and so on. The intention is to free up properties for first time buyers, however, critics claim that it will have the opposite effect by increasing rents due to the fall in the supply of rented accommodation. Also the supply in houses available to buy could drop as investors who fund new developments may be put off by the tax increases. It is also claimed that landlords will need to protect their investment and may therefore pass the cost on in the form of higher rent.”

The property team at Healys has a wealth of experience in dealing with property transactions and they understand the importance of getting your investment to generate a return as soon as possible.  Therefore, if you wish to be expertly guided through a buy-to-let purchase then please feel free to contact us for a chat.

For further information on our services please contact the property team on 020 7822 4000 or email property@healys.com.