Stamp Duty Land Tax, as it is classified currently in England – the tax you pay when you buy a property - has undergone a number of changes since it was introduced in the late 1950s. Notably for investors, the most recent change was the introduction of a 3% ‘higher rate’ levy in 2016, applied to any property purchase beyond your own primary residence. All purchases are banded, much like the income tax system, with different rates applied to different portions of the value, with a zero-rate allowance for a first residential property purchase.
So, taking England as the example, as it stood until 8th July, the rates were as follows:
|Purchase price||Single home owners||Investors / 2nd + homes|
|Portion from £125,001 to £250,000||2%||5%|
|Portion from £250,001 to £925,000||5%||8%|
|Portion from £925,001 to £1.5m||10%||13%|
|Portion above £1.5m||12%||15%|
But, last month, there was some good news for those considering buying property in the UK. In an effort to stimulate the housing market following what they perceived as a relatively stagnant period over the past few months, the Government announced the introduction of a temporary stamp duty ‘holiday’ in England for property purchases up to £500,000 - although the 3% higher rate will still apply for investors.
With housing being a devolved function, the rates, bands and effective dates vary between the nations, but each country has made some changes that will be in effect until the end of March next year.
In Scotland, there is no stamp duty on standard residential purchases up to £250,000, although the Additional Dwelling Supplement of 4% will remain. However, in Wales, while the zero-rate threshold has been increased from £180,000 to £250,000 for first-home purchases, additional properties will still attract the standard LTT rate of 3.5% for the portion from £180,000 to £250,000, as well as the additional 3% charge. This means investors in Wales will, unfortunately, see no benefit during this ‘holiday’ period, in contrast to those in England and Scotland.
What this change means for investors & second-plus homeowners in England
Of all the nations, the potential saving is greatest in England. While you still have to pay the 3% higher-rate charge for additional properties beyond your primary home, you will benefit from the zero standard rate for purchases up to £500,000 in value. For example, if you were buying an investment property in England for £350,000:
Pre 8 July 2020
First £125,000 x 3% = £3,750
Next £125,000 x 5% = £6,250
Next £100,000 x 8% = £8,000
Total SDLT = £18,000
Post 8 July 2020 to 31 March 2021
£350,000 x 3% = £10,500
The saving in this example would be £7,500. If the property was worth £500,000, you would save £15,000. These savings mean you may be able to afford a slightly better property, put down a bigger deposit and secure a better mortgage rate, or even spend extra on improvements to make the property even more attractive to tenants.
How much effect could this have on the market?
This stamp duty holiday comes on the heels of two other significant factors: firstly, the government’s recent announcement that the UK has entered a recession and, secondly, global stock markets being in a volatile state. Times of economic uncertainty often present great opportunities for investors to secure property at a discount and if you can also save thousands of pounds on purchase costs, that makes the investment even more attractive.
So we may well see both new investors entering the long-term Buy to Let market and current landlords who are well capitalised taking advantage of these unusual times.
On the flip side, this stamp duty break will be frustrating news for anyone who has completed during the last few months.
That said, as always, it’s important to focus on your own local market and take advice from experts who can help guide you towards the best potential deals and most appropriate investments. If the stamp duty changes and current market conditions have prompted you to consider making an investment in the coming months, please do make an appointment to come and speak to us in your local branch and one of the team will be happy to help.