If you are on the verge of buying a second home, or looking to invest in a buy-to-let property, then you need to be aware of some recent changes to Stamp Duty on those properties.
Before Christmas, the Government outlined plans to increase the amount of stamp duty that is to be paid by people who buy second homes, whether to live in or to rent out.
Any second property that costs more than £40,000, purchased from the start of April 2016, will be subjected to a three per cent increase in Stamp Duty.
The move has been taken to help first-time buyers to get on the property ladder. It is hoped it will deter some people from investing in a second property, which will in turn help to keep more houses available to other buyers, as well as preventing prices from increasing too quickly.
Stamp Duty on second properties is calculated as a percentage of the sale price, and properties are grouped into bands, as follows:
Up to £125,000 – 3% Stamp Duty (from April 2016)
Between £125,000.01 and £250,000 – 5% Stamp Duty
Between £250,000.01 and £925,000 – 8% Stamp Duty
Between £925,000.01 and £1.5m – 13% Stamp Duty
Over £1,500,000.01 – 15% Stamp Duty
Note that although no Stamp Duty is payable on properties under £40,000, the full 3% is payable on any properties over £40,000.
Each of these new percentages is a 3% increase from the old levels. It is a slightly complicated system, so here are two examples of how is it calculated:
Example 1:
A second home purchased for £275,000 would see Stamp Duty worth £12,000 payable.
The first £125,000 taxed at 3% = £3,750
The next £125,000 is taxed at 5% = £6,250
The final £25,000 is taxed at 8% = £2,000
Which gives us a total of £12,000.
Example 2:
A second home is purchased for £195,000.
The first £125,000 taxed at 3% = £3,750
The final £70,000 taxed at 5% = £3,500
Which gives a total of £7,250.
Of course, this represents a significant price hike for anybody who is considering buying a second property, and we would urge anybody to seek legal advice and ensure they have accounted for this increase as part of their budget.
Of course, the increase only applies from April 2016 onwards, so there is possibly still time to get a sale to go through.
If you have any questions about the new Stamp Duty rates, or any conveyancing queries at all, please get in touch with DMA Law and we will be able to help.
