Although much of the focus has been on buy-to-let landlords, Cheshire law firm FDR Law warn that all second home owners are set to be hit with new costs from 1st April 2016 when a controversial extra 3 per cent stamp duty charge is introduced.
In his Autumn Statement, George Osborne added three per cent on the entire purchase price to every stamp duty band for buy-to-let and second homes. The change, which aims to free up housing for buyers, will add thousands to buy-to-let property transactions. For example, a home worth £250,000 will accrue an additional £7,500 taking the total bill to £10,000. This is a big jump at a time when people have just got used to the newer lower stamp duty rates introduced two years ago.
Says Chris Illingworth, Residential Conveyancing solicitor at FDR Law, ‘It’s not just buy-to-let landlords who will be affected by the changes. Anyone owning a second property that isn't their main residence and buying another, or replacing the one they don't live in, will be hit with extra 3 per cent stamp duty bill. This could be parents buying a property for their children or a couple purchasing a home together where one is already a homeowner. Only houseboats, caravans, homes under £40,000 and some multiple purchases are exempt.’
This has the potential to seriously affect the property market, as landlords and second homeowners clamour to purchase before the April deadline.
‘While it seems clear that buying a second property is just about to become a more expensive prospect for most and may deter the one off buy-to-let landlord investors, those in it for the long term will take the hit and simply hike up rental payments to ensure that they still get the yield that they’re looking for,’ predicts Illingworth.
Although there is a consultation period currently underway, there are some things worth considering now. Buy-to-let landlords could incorporate their business into a limited company so they’ll pay corporation tax instead of income tax, which is lower. Helping your children get on the property ladder? You could be hit with extra stamp duty under the proposals if you buy a home for your children to live in or buy in joint names. The only way round this would be to buy the home in the child's name outright.
Says Illingworth, ‘No doubt there will be further announcements from government and many loose ends will be tied up before 1 April. However, if you’re planning to purchase a second property now is not the time to sit on the fence. By mid-February it will become more difficult to complete before the new charges come into effect. If you’re starting the buying process now make sure that you have the additional finances in place should your purchase be delayed, otherwise you could find yourself seriously out of pocket. The only leeway is that those hitting delays in the selling process can get a refund of the stamp duty if you sell your old property within 18 months.’
If you need further advice please contact Chris Illingworth, Residential Conveyancing solicitor at FDR Law on 01925 230000.