stamp duty tax increase second home purchasers

Last Updated on December 17, 2015 by Mark Lavington

stamp duty tax increase for second home purchasersThis year’s autumn budgetary statement from George Osborne had many looking on intently, wondering just how far cuts would reach, and where extra revenue would be gained as the country continues to ‘balance the books’ and reduce the deficit. Those wishing to invest in an additional home may wish to consider speeding up their purchase before the proposed stamp duty tax increase for second home purchasers takes effect.

For those looking to purchase second homes or buy to let properties there was the announcement that a higher rate of tax duty would be introduced, meaning those buying a property for £500,000 could be stung with an additional £15,000 to pay to the tax man.

What are the proposed changes?

If you’re looking to buy an additional property, whether it be as a holiday home or as a residential buy to let, a 3% surcharge will be applied to each stamp duty band (for all properties costing more than £40,000), with the new measures coming into effect for homeowners in England, Wales and Northern Ireland from next April. Whilst yet to be confirmed, the Scottish Government have also indicated they’re likely to follow suit.

A few working examples:

If your purchase price is up to £125,000 you won’t currently be liable for any SDLT. From April 1, you will have to pay 3% on any second property over £40,000, a tax increase of £3,750.

At the higher end of the scale, you will pay 6% on a second holiday home between £500,000 and £1 million, equating to an additional £15,000 to tax (you would have previously paid £15,000 at 3%).

Here is the full table of tax rate increase:

Property valueStandard rate Additional home rate (April 2016)
Up to £125,0000%3%
£125 – £250,0002%5%
£250,000 – £925,0005%8%
£925,000 to £1.5m10%13%
Over £1.5m12%15%

Exchange and completion overlap

The increases in Stamp Duty mean that many looking to purchase will aim to complete before the April date of inception, and current indications are that the government are holding very firm on that date; even if you’ve exchanged before April 1, the sale must be completed before that date in order to be exempt from the new rate.

However, there will be a number of circumstances where completion is not physically possible, for example the purchase of new-build buy-to-let properties that have been bought off plan but are not going to be completed until after 1 April. To reflect this, there are indications that the new surcharge will not apply where a property exchanged prior to 25 November 2015.

Why the increase in stamp duty?

The Chancellor has proposed the stamp duty tax increase for second home purchasers in a bid to free up houses for first time buyers and families,

Where will your extra stamp duty be spent?

Almost £1 billion will be raised through the extra SDLT, some of which will be reinvested ‘in local communities in London and places like Cornwall which are being priced out of home ownership.’

Consultation

Whilst announced by George Osborne along with a raft of other potential legislative changes, these changes will be subject to a consultation period before final details are made available. The consultation on changes proposed for England and Wales can be read here, only runs until the 1st February 2016.

How will it affect the holiday home industry?

Experts are predicting the changes will impact areas that have high amounts of second holiday homes, such as Cornwall.

In the short term they expect a reduction in the number of buy-to-let sales, but project a recovery once the SDLT changes are embedded into the property market (and therefore incorporated and absorbed into sale prices).

If you are purchasing an additional home for letting either as a buy-to-let or holiday letting property Boshers are here to help you with your insurance needs. We offer specialist holiday home insurance to owners across the UK and can also arrange cover for residential landlords. For more information on how a specialist insurer can help and support you please give us a call on 01237 429444.

Please note that this article gives only an overview of the proposed stamp duty tax increase for second home purchasers. There is a consultation period further to which the details are likely to change. The proposed implementation date is April 1st 2016. We suggest you take advice from a qualified professional before making any decisions in this area.

2 replies
  1. Graham Walker
    Graham Walker says:

    This comment is limited to the purchase of second homes or ‘buy to let’ which may or may not be holiday cottages. It does not answer the question as to how the fax revisions would affect the sale/purchase of commercial holiday cottage businesses, i.e. Those which have restrictions on them limiting residential occupancy and eligible for business rates and different tax treatment as businesses, such as entrepreneurs relief not marginal capital gain on sale. A response to this would be very useful to me and to those looking to buy or sell dedicated, commercial, holiday cottages. Thanks Graham Walker

    Reply
    • Mark Lavington
      Mark Lavington says:

      Within the consultation document it does state that, “The government proposes that properties bought as furnished holiday lets should be treated in the same way as all other residential properties – if the property is purchased as an additional property the higher rates will apply”. The final details will be revealed following the consultation process and no doubt furnished holiday lettings tax experts such as John Endacott author of Furnished Holiday Lettings – A Tax Guide will likely publish guidance in due course. Boshers expertise is in holiday home insurance for UK furnished holiday lets, we’re not qualified to be drawn into the complexities of taxation, however our blog is widely read so do keep an eye on replies to this post. Thanks for your comments.

      Reply

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