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Buy-To-Let and Second Homes – Changes to Stamp Duty and Capital Gains Tax

Written by Jon Cooper

The Summer Budget and Autumn Statement contained a quartet of tax changes that will have a massive impact on the on the Buy-To-Let property sector.

In second of a two-part newsletter series, we look at the impact of the changes in Stamp Duty, Capital Gains Tax and the abolition of the Wear and Tear Allowance for furnished properties announced in the Autumn Statement, and what may be around the corner.

From April 2016, a higher rate of Stamp Duty Land Tax (SDLT) will be charged on the purchase of additional residential properties for more than £40,000. The higher rate will be 3% above the current Stamp Duty Land Tax rates and will apply to Buy-To-Let properties and second homes.

On many levels, this seems a sensible proposal especially for parts of the country where much of the local population are unable to afford to buy houses due to the desirability of second homes.

For a £400,000.00 property, the SDLT for a Buy-To-Let or second home buyer will be £20,800.00 compared to £10,000.00 for those buying their own home.

However, announcing that this change comes into effect from April 2016 has seen a surge in property purchases with the Royal Institute of Chartered Surveyors describing the housing market in December as “unusually buoyant”.

Whilst the framework of the policy was set at the Autumn Statement, the details are yet to be finalised. To this end, HMRC published a consultation document in December. The consultation runs to 1st February with the final format to be announced at the Budget on 16th March and the higher rates applying from 1st April 2016.

The consultation document raises major issues. Whilst the stated intention of the reform was to penalise the purchase of Buy-To-Let properties and second homes, it would also apply to someone buying a property to replace their main residence but who had not sold their current main residence.

As long as the original main residence is sold within eighteen months, a refund of the additional Stamp Duty would apply. However, this does not take the sting out of the additional cost at the time of purchase.

There is some acknowledgement of this in one of the questions:

“Would there be a benefit to a significant number of purchasers if the test for whether someone owns one, or more than one, residential properties, were undertaken at the time of submitting the SDLT return, rather than at the end of the day of the transaction?”

However, given the government is legislating to reduce the time to submit the SDLT return to fourteen days after completion, this would only provide a minimal overlap.

There is also cause for concern for joint purchasers. As the price of housing continues to increase, especially in London and Home Counties, the proposition of two or more unrelated individuals buying a property together is growing more popular.

The consultation intends that, if any of the joint purchasers has another property and is not replacing a main residence, the higher rates will apply to the entire transaction.

For individuals that inherit a property, the current treatment of this being outside the scope SDLT will continue to apply. However, an inherited property will be relevant when determining if a buyer is purchasing second home.

Finally, and most alarmingly, whilst SDLT only applies to purchases of land and property in England, Wales and Northern Ireland, the consultation indicates that property owned globally will be relevant.

Potentially, someone who is purchasing their first or only property in England, Wales or Northern Ireland, may have to pay the higher rates on this purchase if they own property outside these areas.

Homeowners would be legally obliged to declare non-UK property and would be committing a criminal offence if they omitted to do so.

Given that it is estimated that up to a million Britons own property abroad, the impact would be far-reaching.

It is important to emphasize that this is a consultation and there is still time for you to have your say. The full consultation document is here with responses needing to be emailed to sdltadditionalproperties@hmtreasury.gsi.gov.uk by 1st February.

The second change that will impact the Buy-To-Let and second homes markets comes into effect from April 2019.

At present, the Capital Gains Tax on property is part of the annual Self-Assessment Tax Return with the tax due accordingly.

At the maximum, the Capital Gains Tax due on a second home sold on 6th April 2016 would not be due until 31st January 2018. However, from April 2019, the Capital Gains Tax will be due thirty days after the sale of the property.

Finally, those landlords that rent out furnished property face the abolition of the Wear and Tear allowance from April.

Instead of being able to deduct 10% of the rental income in lieu of the wear and tear on fixtures and fittings, landlords will be entitled to a relief to deduct the costs they actually incur on replacing furnishings, appliances and kitchenware in the property.

The additional revenue to Exchequer is estimated to be £205m in the 2017-18 tax year and, essentially, this is at the cost of those landlords who have recently refitted their property. Indeed, there is little incentive to replace any fixtures and fittings before April.

This may not be the end of the changes with The Financial Times reporting that the Chancellor is looking at enabling the Bank of England to be able to impose curbs on the levels at lenders can offer loans to prospective private landlords.

At CooperFaure, we are currently working with a number of clients with both individual and corporate property portfolios and would be pleased to review your circumstances. Please email us at welcome@cooperfaure.co.uk for an initial, free consultation.

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