Another blow for buy-to-let investors

THE Chancellor today announced that those purchasing properties for buy-to-let or as holiday homes will have to pay a penalty – stamp duty at a rate that is 3% higher than a residential purchase.

It’s another blow for those who see buy-to-let as an alternative investment vehicle given the historically low levels of interest rates and it follows his announcement on mortgage interest relief in the July Budget.

Chancellor George Osborne said: “More and more homes are being bought as buy-to-lets or second homes. Many of them are cash purchases that aren’t affected by the restrictions I introduced in the Budget on mortgage interest relief; and many of them are bought by those who aren’t resident in this country.

“Frankly, people buying a home to let should not be squeezing out families who can’t afford a home to buy.”

For purchases on or after April 1, 2016 higher rates of Stamp Duty Land Tax (SDLT) will be charged on purchases of residential property which will be used as buy-to-lets or second homes. Based on a premium of 3% above existing SDLT rates, the starting rate will be 5% and seems set for a lower starting point of £40,000.

Rob Durrant-Walker, senior tax consultant at Yorkshire accountancy firm Garbutt + Elliott, said: “The government continues its attempts to even up the residential property market away from buy to let and second home owners, and back in favour of owner-occupiers.   

“The new rate will not apply to caravans, mobile homes or house boats.  Companies or funds making significant investments in residential property – owning more than 15 properties – will also be exempt from the higher rate given the role of such investment in supporting the government’s housing agenda.

“The government will consult on the fine detail of the new SDLT charge, but aims to use some of the additional tax collected to assist communities in England where the impact of second homes is particularly acute.

“The change follows on from the summer budget changes that will restrict mortgage interest tax relief for Buy to Let landlords from 2017, and which also removed an Inheritance Tax planning route for non-resident owners from 2017 owning residential property through offshore companies.”

The change will be introduced from April next year and the extra stamp duty will raise almost £1bn by 2021.

Mr Osborne added that some of the money raised would be reinvested in local communities in London and “places like Cornwall” which he said are being priced out of home ownership.