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The Budget 2016: Stamp duty is changing – make sure you’re in the know about the new rule

People buying additional properties will face an extra 3% stamp duty from 1st April 2016, George Osborne confirmed today in The Budget. This will impact the buy-to-let market as those looking to invest will be subject to further costs.

People buying additional properties will face an extra 3% stamp duty from 1st April 2016, George Osborne confirmed today in The Budget. This will impact the buy-to-let market as those looking to invest will be subject to further costs.

For example, if you are looking to buy an investment property for £500,000, the cost of your stamp duty will raise from £15,000 to £30,000.

If you’re a landlord or thinking of buying a second property, it is worth considering what this announcement means to you. 

What should people do if they are thinking of buying another property?

Property is often a sound investment if you work out your sums and affordability before you buy. If you’re planning on buying another property after the 1st April, you will have to ensure the additional expenses of stamp duty are accounted for, for example from the likely capital growth of the property. 

Rentals work as investments both in terms of yield and capital growth. The more you spend on the property the lower your yield is likely to be. However, if you do your maths the increase you have paid in stamp duty may be covered in the amount you can achieve in rent and therefore have a smaller impact on yield. At the end of the day, the property should still be positively geared and your rental should cover your mortgage, insurance and maintenance costs as well as void periods between tenancies.

It is also worth doing your research about where is good to buy an investment property. Our research currently shows that areas such as Crystal Palace, Harrow and Golders Green achieve excellent yield. We are predicting that property prices in greater London will rise by 6% for flats and 3% for houses in 2016 – making them also a good investment in terms of capital growth.  With rentals being the second largest tenure in the UK, buy-to-let is still a very good investment.

If the property is for enjoyment rather than investment, however, then you have to weigh up the benefits of buying the property versus spending the extra money. 

Is there any way to offset these costs?

Stamp duty can be offset against capital gains tax when the property is sold and this will include the additional 3% that would be paid if the property was purchased as an additional home. It is worth noting that you can also offset estate agencies fees against capital gains tax too. However, we recommend you speak to an accountant for full information and advice regarding this. 

What about people that are selling their homes and buying another one?

The stamp duty changes only apply to people purchasing additional properties, so if you are selling your home and buying another, you won’t be charged the additional 3%. 

How will this impact the housing market?

It is likely these measures have been introduced to try and free the market up for first time buyers and help them on the ladder. Movement in the market from all ends is usually a positive thing as it creates a more sustainable market. However, landlords may be encouraged to reduce their stamp duty by buying in the lower end of the market and therefore will be in direct competition for the types of houses first time buyers can afford.

In the buy-to-let market itself, while investors will be disadvantaged by these changes, property is often viewed as a secure long-term investment, and given other asset classes offer poor returns, we doubt that landlords will be deterred. 

The best thing you can do whether you’re looking to buy, sell, rent or let is to speak to your local agent for their expertise and advice as they will be able to guide you on current market conditions and talk you through the best options for you. 

 

For more information about these properties or for help with your property needs visit winkworth.co.uk 

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