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Stamp Duty Changes 2016 Explained

Posted: 17th March 2016

People buying additional properties will face an extra 3% stamp duty from 1st April 2016, George Osborne confirmed today in The Budget. This will impact the buy-to-let market as those looking to invest will be subject to further costs.

For example, if you are looking to buy an investment property for £500,000, the cost of your stamp duty will raise from £15,000 to £30,000.

If you’re a landlord or thinking of buying a second property, it is worth considering what this announcement means to you.

What should people do if they are thinking of buying another property?

Property is often a sound investment if you work out your sums and affordability before you buy. If you’re planning on buying another property after the 1st April, you will have to ensure the additional expenses of stamp duty are accounted for, for example from the likely capital growth of the property.

Rentals work as investments both in terms of yield and capital growth. The more you spend on the property the lower your yield is likely to be. However, if you do your maths the increase you have paid in stamp duty may be covered in the amount you can achieve in rent and therefore have a smaller impact on yield. At the end of the day, the property should still be positively geared and your rental should cover your mortgage, insurance and maintenance costs as well as void periods between tenancies.

If the property is for enjoyment rather than investment, however, then you have to weigh up the benefits of buying the property versus spending the extra money.

Is there any way to offset these costs?

Stamp duty can be offset against capital gains tax when the property is sold and this will include the additional 3% that would be paid if the property was purchased as an additional home. It is worth noting that you can also offset estate agencies fees against capital gains tax too. However, we recommend you speak to an accountant for full information and advice regarding this.

What about people that are selling their homes and buying another one?

The stamp duty changes only apply to people purchasing additional properties, so if you are selling your home and buying another, you won’t be charged the additional 3%.

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