What Do the Stamp Duty Changes Mean For You?

For the next eight months, stamp duty land tax (SDLT) will not be payable on properties up to £500,000, giving thousands of home-movers and investors a fantastic financial incentive to buy now. Managing Director, Steve Olejnik, explains why the next eight months could be especially beneficial for buy to let both homeowners and property investors alike.

Rishi Sunak's stamp duty announcement on the 8th July 2020 was a welcome relief to first time buyers, homeowners looking to move and property investors alike. This announcement, which covered Stamp Duty Land Tax (SDLT) in England and Northern Ireland, also prompted follow on announcements from the devolved Scottish and Welsh Governments who swiftly announced their property tax relief schemes.

The property tax reductions bring several opportunities across the property spectrum, so we've taken a look at how this tax relief scheme may benefits you.

What are the new property tax bandings for residential properties (single homeowners)?

England and Northern Ireland - Stamp Duty Land Tax for residential properties (Effective from 8th July 2020 - 31st March 2021)
Property price SDLT Rate
Up to £500,000 0%
Above £500,000 to £925,000 5%
Above £925,000 to £1,500,000 10%
Over £1,500,000 12%

Scotland - Land and Buildings Transaction Tax for residential properties (15th July 2020 - 31st March 2021)
Purchase price LBTT rate
Up to £250,000 0%
Above £250,000 to £325,000 5%
Above £325,000 to £750,000 10%
Over £750,000 12%

Wales - Land Transaction Tax for residential properties (27th July 2020 - 31st March 2021)
Price threshold LTT rate
Up to £250,000 0%
Above £250,000 to £400,000 5%
Above £400,000 to £750,000 7.5%
Above £750,000 to £1,500,000 10%
Over £1,500,000 12%

Please note: The Welsh scheme only applies for first homes, and not for second homes or more properties. So for the vast majority of landlords, this saving will not be applicable for their buy to let, unless they do not own their own home and it is their first investment.

What does this mean for first-time buyers and home-movers?

From now until 31st March 20201, in England and Northern Ireland, first-time buyers and home-movers will not have to pay stamp duty on their new home up to £500,000. For properties over £500,000, you will still save the stamp duty on the first £500,000, and you will pay stamp duty on the rest of the property value.

These changes will help an estimated 9 out of 10 property transactions during this period.

Please note: The new stamp duty bandings have replaced the relief for first-time buyers for the period of 8th July 2020 and the 31st March 2021.

Example (during 8th July 2020 and 31st March 2021):
On a property priced at £600,000, stamp duty would be payable on:
5% of £100,000 (the amount above £500,000) = £5,000
New SDLT cost: £5,000
Previous SDLT cost: £20,000
Saving: £15,000

What does this mean for buy to let landlords?

For landlords and property investors in England and Northern Ireland, it's good news! Although Rishi Sunak's stamp duty tax changes don't apply to the second-home surcharge, the temporarily revised threshold offers new and experienced property investors some attractive opportunities to expand and rearrange their portfolios.

Property price SDLT Rate
Up to £500,000 3%
£500,000.01 - £925,000 8%
£925,000.01 - £1,500,000 13%
£1,500,000.01+ 15%

Example (during 8th July 2020 and 31st March 2021):
On a buy to let (or second home) property priced at £350,000 stamp duty would be payable on:
3% of £350,000 = £10,500
New SDLT cost: £10,500
Previous SDLT cost: £18,000
Saving: £7,500

On a buy to let (or second home) property priced at £600,000 stamp duty would be payable on:
£100,000 (the amount above £500,000) = £8,000
Plus 3% of £500,000 = £15,000
New SDLT cost: £23,000
Previous SDLT cost: £38,000
Saving: £15,000

How can property investors make the most of the changes?

Incorporate to a Limited Company

Since 2015, when the government announced that it would be phasing out income tax relief for landlords, an increasing number of property investors have begun using a Limited Company or SPV (Special Purpose Vehicle) structure, rather than their personal name.

For those who already had properties in their personal names, some started to "transfer" these investments into a limited company. However, you can't merely transfer property like this; legally, it is a full sale and purchase transaction. For this reason, your limited company still pays regular stamp duty on the purchase price of the property, making it a potentially expensive process.

For many, this stamp duty tax 'holiday' offers many investors the chance to incorporate personally owned property into a limited company at significantly less expense and make use of the financial benefits it can provide higher tax ratepayers.

If you'd like to know more about holding property in a limited company, you can read our blog on the differences between personal and limited company ownership of buy to let property, here. You should always speak to a professional tax advisor if you are considering investing via a limited company for the first time, as is not necessarily the most cost-effective way for everyone to invest.

Holiday Lets

With international holidays more or less off the cards this summer, whether due to travel restrictions, personal choice or finances, many of us are looking closer to home for a getaway. When the government announced that it would lift restrictions on parts of the hospitality industry from the 4th July, holiday cottage sites reported a record surge in bookings. Hoseasons saw a booking every 11 seconds, with sales up 270% on last year and Cottages.com reported a 455% increase on their figures from the same time in 2019.

It's become clear that there is an increasingly high demand for holiday accommodation in the UK. What is still uncertain is when 'normal' international travel will be able to resume, and whether as many of us will be comfortable doing so. Consequently, we're expecting the 'staycation' demand to remain for at least the next couple of years, meaning that owning a holiday let property is likely to be very profitable!

The good news is that holiday lets also fall under residential property and are eligible for the Stamp Duty Land Tax relief!

In the last few weeks, we have seen several lenders bring back competitive holiday let mortgage products to their offering, demonstrating that they too recognise the appetite for these properties in the market. Whether you're diversifying and expanding an existing portfolio or beginning your property investment journey, this surge in demand coupled with the stamp duty tax holiday offers an attractive opportunity.

If you'd like to discuss how you might be able to finance a new property investment or incorporate your existing portfolio into a limited company, our experienced consultants can help. Give them a call on 0345 345 6788 or email enquiry@mortgagesforbusiness.co.uk.

 

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NB: ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

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