It has been reported that 44% of estate agents are reporting an increase in interest from landlords trying to beat the buy-to-let stamp duty changes set to come into force in April.
What are the stamp duty changes?
Back in his 2015 Autumn Statement, Chancellor George Osborne announced changes to the stamp duty applied to second homes and buy-to-let properties.
From April 2016, anyone buying a second or additional property will be charged an extra 3% stamp duty.
Current stamp duty rate
Stamp duty rate from April 2016 on second or multiple properties
£0 – £125,000
£125,001 – £250,000
£250,001 – £925,000
£925,001 – £1,500,000
So, if you are a landlord or buy-to-let investor looking to buy a property at the UK’s average property price of Â£288,000, before April 2016 you would pay £4,400 in stamp duty land tax, but after April 2016 your stamp duty bill would jump to £13,800!
Why is George Osborne targeting landlords?
Once seen as an investment opportunity open to the masses, buy-to-let investment has become a controversial part of the property market, with many blaming buy-to-let investors for rising property prices which prevent first time buyers from being able to get a foot on the property ladder.
What other changes are being introduced?
Tax relief is the other major change set to impact the buy-to-let market. Currently, landlords can claim for interest on buy-to-let mortgage payments, allowing them to effectively offset mortgage interest against rental income. From April 2015, however, landlords will be subject to a gradual change in tax relief which will see them starting to be taxed on their turnover, rather than their profit. The changes will be fully implemented by 2020, and Property Partner claims that the tax relief changes, combined with inevitable eventual interest rate rises, could make buy-to-let property unprofitable in as many as 7 out of 10 towns and cities.
According to Property Partner, investors in Cambridge currently make an average annual profit of around £4,257. If interest rates rise by a predicted 2.5%, that £4,257 profit would quickly drop to a £2,418 annual loss!
What can landlords do about it?
Many landlords are expected to walk away from the buy-to-let market, leaving a shortage of rental properties, but those who stick it out have very limited options:
- Increase rents to cover the financial impact of the changes
- Accept the changes and hold on to the property in the hope of benefitting from capital gains
- Sell less-profitable property quickly and invest in more profitable options before the stamp duty changes come into force in April 2016 – if you decide this is the best option for you, Quick Move Now could buy any vacant buy-to-let property in as little as 7 days, with a quick, guaranteed cash purchase
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