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Buy-to-let tax laws to change in April
New changes in the law due to come into effect on the 1st April 2016 mean that buy-to-let investors will have to pay an extra 3% in Stamp Duty Land Tax after completing a property sale.
The changes mean anyone who owns more than one property will face a higher rate of tax when they buy a new property.
What are the new rates?
Currently, you would not be expected to pay any Stamp Duty Land Tax (SDLT) on a house purchase up to a value of £125,000 – but this tax-free threshold will be removed come 1st April for people buying a second property. Below you can see the old rates of tax alongside the new ones.
|Property value threshold||Current SDLT rates||New SDLT rates|
|£0 - £125,000||0%||3%|
|£125,001 - £250,000||2%||5%|
|£250,001 - £925,000||5%||8%|
|£925,001 - £1.5 million||10%||13%|
|£1.5 million and above||12%||15%|
The above rates mean that for every pound you spend in between a certain threshold, you will pay the percentage of tax that lines up with it.
For example, if you bought a property for £300,000 under the current rates (regardless of whether or not you already own a property), you would expect to pay 0% on the first £125,000, 2% on the next £125,000 and then 5% on the final £50,000. This takes you to a total tax bill of £5,000.
In contrast, with the new rates set to come into force on 1st April, if you already own one or more properties and you buy another one for £300,000, you would expect to pay 3% on the first £125,000, 5% on the next £125,000 and then 8% on the final £50,000. Here, the total SDLT you would pay is £14,000.
How do I know if this affects me?
If you currently own more than one home, or you have plans to buy more in the future, the new changes may affect you. Put simply, you will have to pay the higher rate of tax if you buy a second property that is not your main place of residence.
Of course, this means buy-to-let landlords that plan on buying more properties in the future are likely to be hit the hardest.
If you buy a new home that you intend to live in while you’re in the process of selling your old one, you may end up paying the higher rates of SDLT. In this case, you can apply for a refund so long as your old home is sold within 18 months of buying your new one.
Remember, you won’t have to pay the new rates if you only own one property – even if you use that property to rent out to others. They only apply if you own more than one home.
Does this apply to all properties?
For the most part, the new tax thresholds apply to all properties, but there are some exemptions. For example, if the property you’re purchasing costs less than £40,000, you won’t have to pay any Stamp Duty. Similarly, if it’s a caravan, houseboat or mobile home, you won’t need to pay a penny in this tax.
At first, the government were considering excluding buy-to-let companies that own 15 or more properties from the new levels of tax, as well as companies purchasing 15 or more properties at once. However, George Osborne announced in the 2016 Budget that all buy-to-let landlords, including those that own 15 or more properties, will face the same tax rates.
So, if you’re a buy-to-let landlord, it’s quite likely that these changes will affect your future property purchases. We hope this has covered everything you need to know, but if you have any more questions about the new tax changes, feel free to get in touch via our Facebook and Twitter and we’ll be happy to help.