The property industry is central to a lot of what we do as a company – from decorating blocks of new build flats to undertaking the full refurbishment of hotels – in the past our team have taken care of them all. However, following the recent announcement surrounding increases to stamp duty, the industry is facing significant changes – specifically around the areas of buy to let properties and second homes.
In his Autumn Statement, Chancellor George Osborne announced that those investors purchasing buy-to-let properties and second homes would, from the 1st April 2016, incur a new 3% stamp duty surcharge. He believes that the changes would help to generate £3.8 billion in tax for the treasury and mean that investors will now pay:
- 3% on properties valued up to £125,000 – an increase from the current 0% standard rate.
- 5% on properties valued up to £250,000 – an increase from the current 2% standard rate.
- 8% on properties valued up to £925,000 – an increase from the current 5% standard rate.
- 13% on properties valued up to £1.5 million – an increase from the current 10% standard rate.
- 15% on properties over £1.5 million – an increase from the current 12% standard rate.
What the Changes Mean For the Industry
These changes are likely to impact upon two groups – property developers and renters. If buy to let investors are not willing to pay the stamp duty surcharge, then demand for new build properties could potentially fall. Property developers will therefore be less willing to invest in the construction of those properties if they know that their return is likely to be affected.
“These changes clearly have a profound impact on the after-tax profits available to buy-to-let investors. Many will feel they can accept a smaller yield in the hope that, in the long run, house price increases result in a significant capital gain. On the other hand, some will feel that the squeeze makes it significantly less appealing and will look to invest elsewhere.” – Gordon Andrews, Tax Specialist at Old Mutual Wealth.
With fewer properties being built, it is likely to result in a reduction in the number of properties available for private rent. This could see renters take a hit through increased rent payments; with recent research by estate agents Reeds Rains and Your Move already identifying that a typical monthly rent has increased by £36 compared with October 2014.
In his 2014 statement, George Osborne reduced the rate of tax paid when purchasing new homes. This has been incredibly popular, with many people paying as much as £4,500 less in stamp duty as a result. We wait with interest to see what impact this years changes will have.