Stamp duty changes for buy-to-let purchases
In his Autumn Statement, the Chancellor announced that higher rates of stamp duty will be charged on the property purchased for buy-to-let purposes (above £40,000). This change will come into effect on purchases that complete from midnight on 31 March 2016.
The higher rate of stamp duty for buy-to-let purposes will be 3 percentage points above the current stamp duty rates and will represent a significant cost for buyers.
How you can help your landlord clients to get ready
Whether your client is purchasing a property or raising funds to facilitate a purchase of another property, it is important that they understand how this change could affect them. Please ensure that you provide us with all the information we need to process your client’s buy-to-let application as early as possible.
Allow sufficient time
Please remember that even after we have received all the information for your buy-to-let case, lenders will need time to carry out some essential checks, including the assessment of the subject property before the mortgage can be approved.
In addition, as we could see a higher volume of applications over the next two months, it might be difficult for lenders to keep within standard timescales.
Stamp Duty to pay is:
|Purchase price of property||Rate of Stamp Duty||Buy to Let/ Additional Home Rate (from April 2016) *|
|£0 – £125,000||0%||3%|
|£125,001 – £250,000||2%||5%|
|£250,001 – £925,000||5%||8%|
|£925,001 – £1.5 million||10%||13%|
Multiple Properties in the same Transactions
There is a variation to the level of SDLT when the client is buying multiple properties and how this is costed has not been updated on the governments guide to stamp duty. They do however point out the following which is useful as the changed cost structure is for “linked transactions”
SDLT transactions that count as linked
HMRC counts transactions as linked if:
- there’s more than 1 transaction
- the transactions are between the same buyer and seller or between people connected with either of them
- the transactions are part of a single arrangement or scheme or part of a series of transactions
A connected person could be your relative, eg. brother, sister, parent, grandparent, husband, wife or civil partner – or one of their relatives.
If the buyer or seller is a business, a connected person would be a business partner and their relatives. It also includes companies and groups of companies who are connected to the business.
Transactions linked as part of a single arrangement
Some transactions are linked because they’re part of the same single arrangement or scheme. It’s the same whether you document them separately or not. If each transaction has a separate contract, and if the sales are part of the same deal, they count as linked for SDLT.
If you sell a residential property in such a way that the one person buys the house but their relative buys the garden, the 2 transactions are linked. They’re connected people and they’re buying things from the same seller as part of a single deal.
Because the 2 transactions are linked, calculate the amount of tax due on the total chargeable consideration for all the transactions. Then, apportion this amount between the transactions in proportion to their share of the total chargeable consideration.
Transactions linked as part of a series of transactions
When a sale is followed by 1 or more related sales, if there’s something to link all the transactions together, they count as linked transactions for SDLT. There’s no limit to the length of time between the transactions.
Cost of Stamp for Linked Transactions
Following on from linked transactions, there is a relief relating to the purchase of multiple dwellings, although this is subject to a minimum rate of 1%.
If two houses are bought for £250,000 each and two others for £350,000 each, then the total consideration is £1.2m.
SDLT in this example is calculated by dividing the total consideration by the number of transactions (£1.2m ÷ 4 = £300,000). Then SDLT is calculated against that average price and then multiplied by the number of dwellings.
|Up to £125,000||0%||£0|
Multiplied by the number of dwellings (4 x £5,000) = £20,000
From 31st March the cost will increase to the following
|Up to £125,000||3%||£3,750|
Multiplied by the number of dwellings (4 x £5,000) = £56,000
The moral of this is introduce any refinance in to us quickly!