Recently buy to let schemes have had a shakeup due to the new second home tax set to come into force from April 1st, 2016.
What Is The New Tax?
George Osborne announced in the previous month’s Autumn Statement that potential investors and individuals purchasing second homes or buy to let property should expect to pay an increased rate of stamp duty. The exact increase was stated as an additional three percentage points and is applicable over the stamp duty land tax rates currently in place.
What Does The Increased Rate of Stamp Duty Mean?
Therefore, properties worth £125,000 or less will be subject to a three percentage point tax when previously they were subject to 0%. Home owners with a property valued between £125,001 and £250,000 will see their percentage point tax increase from the two percentage point tax presently paid to a five percentage point tax whilst properties valued between £250,001 and £925,000 (who currently pay a five percentage point tax) will have to pay an eight percentage point tax. Lastly, homes above this threshold and up to 1.5 million will be charged a 13 percentage point stamp duty and any home exceeding 1.5 million in value will be subject to a fifteen percentage point tax.
Despite the details contained in the Autumn Statement, the details of who this will affect and how are yet to be released. Consequently, many home owners have been left feeling confused and concerned at what it could mean for them, and how in practise this new rate of tax will work.
The Potential Downside: Non-professional Landlords Who Rent Their Own Homes
Of those most concerned and understandably confused, are those who own buy-to-let property but who do not own the home in which they themselves reside. Most of the investors who fall into this bracket are not professional landlords as most professional landlords do own their own home as well as one or more properties which they let out in order to provide or supplement their income.
Then, many of those who do not own their own home rent because they cannot afford to purchase a home in the area in which they live, whilst taking advantage and making the most of rising property prices by buying in other parts of the UK where property prices are more affordable. Subsequently, they then let those properties out for financial gain.
Hence, the question on the lips of such investors is what a new second home tax might mean for them when they do become financially able to purchase their own home, as many have buy to let property to afford to do exactly that and are now wondering if this new rate of stamp duty will effectively scupper their plans.
The problem is that answering the question is far less simple, or at least the Treasury seems to believe it to be based on the answers they have so far given. In fact, the only solid answer the Treasury has yet given is one advising such buy to let investors to be patient as the answer will be contained in a consultation paper due to be released to the public before the end of the year.
The Potential Upside: Investors Who Already Own Their Own Home and a Second Home or Buy To Let Holiday Home
In the meantime, the Treasury was able to answer the question posed by thousands of home owners who also own a buy to let holiday property and are eager to know how they might be affected, or even if they will be affected and so expected to pay more.
Quite simply, the a Treasury spokesperson assured this band of investors that it is unlikely they will be subject to pay a higher level of tax as they have or will be owning a home and not technically a second property. Reiterated, what the treasury have stated is that the charge will most likely not be charged in retrospect to those who already, right now own more than a single property.
Need advice About the New Rate of Second Home Tax or Want to Speak with Someone?
To learn more about the proposed stamp duty tax rise and what experts are saying, readers can visit the BBC News Website where there is also ‘full and in-depth coverage of the Spending Review and Autumn Statement’ and information on who this might effect, and how.
Alternatively, for advice on your own situation, contact us directly via the Search Mortgage Solutions Contact Page, where you can request a call back from one of our team.
