Showing posts with label second home. Show all posts
Showing posts with label second home. Show all posts

Monday 30 November 2015

Are you prepared for the Stamp Duty changes?

In his Autumn Statement this week, the Chancellor announced a 3 percentage point surcharge on stamp duty land tax (SDLT) for people buying a buy-to-let or second home from April 2016.  For example, on a home worth £275,000, SDLT would rise to £12,000 from £3,750. A significant jump. 

Below are some of the common questions raised along with some guidance though please do note that the legislation has yet to be implemented, and that there could be changes made to the proposals during the consultation process.  It is therefore important not to rely on this guidance without first checking with your conveyancer. 

Are there any exemptions?

The change will not apply to buyers of caravans, mobile homes or houseboats, nor, subject to a consultation, to companies or institutions owning more than fifteen residential properties.

When will this all happen?

1st April 2016

On what value of purchase will it apply?

Treasury documents released immediately after the speech suggested  that the first £40,000 would be tax free. It was however later confirmed that while purchasers who buy a property below £40,000 won’t have to pay the additional 3%, for all purchases above that, the 3% extra tax applies on the entire price. Currently, the rate for stamp duty is 0% on properties up to £125,000, then 2% on any sums over and above £125,000 to £250,000. Properties sold at £250,000 to £925,000 pay 5%, then it is 10% above that. These rates remain the same for standard residential buyers though 3% extra will be added if the property is to be used as a buy-to-let or second home.

If I have already exchanged contracts before the changes were announced will I be affected ?

If you have exchanged contracts on a property caught by these changes before the announcement was made,  but completion is on notice and there is a possibility you will complete after 1st April 2016, my view, having regard to how previous changes have been introduced, that  the increased surcharge is unlikely to apply. 

If I have exchanged contacts after the announcement but are due to complete the transaction after 1st April 2916 will I be required to pay the extra tax?

Probably yes, though there may be ways of avoiding this if you are able to gain possession of the property under license before completion, though do remember that if you are looking to do this there is a requirement to pay the Stamp duty within 30 days.  

There are other options  including the payment of 90% of the purchase price before the deadline or making the consideration partly rent and partly premium, and paying some rent before April.   The best advice is to speak with your conveyancer and seek advice. 

If I am thinking of purchasing a buy to let or second home what do I need to do to ensure that I do not have to pay the extra tax?

Putting it simply make sure you complete the transaction before the 1st April 2016. 

Think also about setting up a corporate vehicle to purchase the property.   Your solicitor or accountant will be able to advise you on what this involves.   Do keep in mind that if you have a property portfolio in your own name and are looking to transfer the ownership of existing properties into a limited company do ensure this is done before the 1st April 2016 otherwise the surcharge will apply to those transactions.  There could also be capital gain tax implications on which advice should be sought. 

Can I purchase the second home or buy to let in my husband or partners name?

I would not advise this as an option as I am sure the Revenue will be alert to this and make sure there is no gap in the legislation to allow this to happen.  There already exists legislation around 'connected persons' and I anticipate this will  be expanded upon to make sure this glaring and obvious situation does not become a loophole.  

What effect is this likely to have on the market?

This together with the recently announced changes to tax relief will make buy to let to the amateur landlord less attractive.  This could cause a shortage of rental properties and may lead to existing landlords pushing up rent.  Developers may also reign back on new builds if the demand for buy to let is no longer high. 

It could also lead to landlords offering to pay less for buy to rent properties and have the effect of making investment property cheaper. This my have been one of the intentions behind the change. 

It is likely that we will see a surge of purchases of this type of property before the deadline and this could in the interim force prices up if there is a mad rush

What should I expect from my conveyancer?

If there is a rush your conveyancer may find it difficult to cope with the large number of cases and may decide in an effort to control the large flow of work to increase fees for this type of work. I read recently that it is estimated as many as  50,000 buy to let transactions could be rushed through before the deadline. 

Clearly it is important to make sure your conveyancer is aware of the purpose of the transaction  and the need to complete before 1st April next. Your conveyancer may be reluctant to give a guarantee and require you to pay the fee irrespective of whether it completes in time. 

Where are the grey areas?

What is the position when a spouse or cohabiter breaks up with a partner and still has an interest in the jointly owned property.  Does the purchase of alternative accommodation count as a second home. Likewise where a property is purchased due to short term relocation for work where the existing property has yet to be sold. 

Hopefully the details will be ironed out once the consultation process is concluded and the legislation is passed.  Until then all you do is to work with what is known and to keep the deadline of the 1st April firmly in mind. 

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at david@mjpconveyancing.com

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