The government has recently consulted on its proposals for higher rates of Stamp Duty Land Tax (‘SDLT’) on purchases of additional residential properties. In summary, the proposals envisage that a purchase of a second, or further, residential property, which is not replacing a main dwelling, will incur an extra 3% of SDLT on the total purchase price, increasing the top band to 15%. On a property worth £500,000, the additional SDLT payable would be £15,000 pushing the SDLT up from £15,000 to £30,000.
The government has made clear that these proposals are part of its commitment to “helping people achieve…by supporting those who want to work hard, save and buy their own home”. With the average house price in the UK today exceeding £280,000, it looks like the government is hoping that these proposals will go some way to cooling the residential property market.
These proposals are due to take effect from 1 April 2016. If contracts were exchanged after 25 November 2015 and the purchase has not completed by 1 April 2016, then the transaction will be caught by the increased rates of SDLT.
Unfortunately, these proposals appear to be policy making on the hoof. The Consultation which was published on 28 December 2015 only recently closed in February and according to the Consultation, the “final design will be announced at the Budget on 16 March 2016”, only two weeks before the proposals are due to come into force.
Who is affected?
The Consultation makes clear that these proposals will “generally” apply to companies as well as to individuals. However, there is expected to be exemption for those “making significant investments in residential property, given the role of this investment in supporting the government’s housing agenda”.
Unfortunately, the government hasn’t quite decided who should qualify for such an exemption. Although George Osborne suggested that such an exemption would be limited to funds and corporates, the Consultation hints that “there may be circumstances in which it is justified to exempt purchases made by individuals from the higher rates”.
One formulation of the exemption proposed in the Consultation would be if you have a portfolio of more than 15 residential properties. Clearly there are problems with this exemption, which may be why the government has asked for suggestions. Investors should also be aware that the government currently intends that multiple dwellings relief will continue to apply.
Impact so far?
The Times recently reported that people are rushing to arrange buy-to-let mortgages before the increased rates of stamp duty kick in. A stampede to beat the 1 April 2016 deadline will do little to help first-time buyers in the short term. If anything, it will increase the chances of first-time buyers losing out as cash-buying second home owners and buy-to-letters rush to purchase before the deadline.
However, The Times also speculated that half a million properties will come onto the market in the next twelve months as landlords sell up as a result of this and other legislation that affects buy-to-let landlords, particularly the loss of tax relief on mortgage payments. So, it is still to be seen whether these proposals, coupled with other related proposals, will help first-time buyers in the long-term.
What’s next?
The government currently plans to finalise its proposals by 16 March having carefully considered the responses to the Consultation. We wait to see what impact the responses will have on the proposals.