Buy-to-let stamp duty: three key questions answered
12-10-2015
Our mail bag has been flooded with queries from landlords and second home buyers. Here we answer your burning questions
Eileen Pearson exchanged contracts on a new build buy-to-let months ago, but will not complete until after the tax rise is introduced on April 1. Photo: Geoff Pugh
By Nicole Blackmore
Property investors were thrown a curve ball in last month’s Autumn Statement when George Osborne announced that anyone buying second homes or buy-to-lets would be hit with a higher rate of stamp duty.
The tax grab, designed to help ease the housing shortage, has thrown up a number of questions from buyers who are already in the process of purchasing a property, as well as those who plan to help children onto the property ladder.
Here we outline the tax change and answer the three key questions that are flooding into our mailbag.
Stamp duty hike
Anyone who buys additional residential property, including second homes and buy-to-lets, will have to pay an additional 3 percentage points in stamp duty from April 1, 2016.
The extra charge applies above the current “stamp duty land tax” rates. This means there will be 3pc tax (currently zero) to pay on homes worth up to £125,000, 5pc tax (instead of 2pc) on homes that cost between £125,001 and £250,000, and 8pc (currently 5pc) on homes worth between £250,001 and £925,000.
Homes worth up to £1.5m will be subject to 13pc stamp duty and those over this amount will incur a 15pc charge.
The Government will consult in the coming weeks on exactly how the tax change will apply in practice.
Your questions answered
What if I've already exchanged contracts?
I’m buying my first buy-to-let – a new build I exchanged contracts for several months ago. It won’t be finished until May or June, when we will complete. Will I have to pay the increased stamp duty?
Eileen Pearson, via email
If you are purchasing a property and exchanged contracts before November 25 – when the Autumn Statement was delivered – you will not have to pay the higher tax rate. This is true even if you complete after April 1.
A Treasury spokesman told Telegraph Money that buyers who exchanged after the Autumn Statement, but complete later than April 1, should have been aware of the tax rise and so will be expected to pay it.
Will I have to pay more if I help my child?
My daughter is buying her first home and, in order to help her get a decent mortgage rate, I’m going to be a joint borrower on the mortgage. This means I will have to be jointly named on the title deeds. As I own my own home, will my daughter have to pay the extra 3pc stamp duty?
MD, via email
Many parents want to help their children buy their first property. Traditionally, parents simply acted as a guarantor on their child’s mortgage, meaning they were not part owners of the property. But very few lenders offer guarantor mortgages now, so many parents take out a joint mortgage with their child to help boost their affordability. As a condition of lending, most banks and building societies require parents to also put their name on the title deeds.
“If the parent already owns a residential property it is likely that the higher stamp duty charge will apply from April 1, but the details will depend on the outcome of the upcoming consultation,” the Treasury spokesman said.
Can I claim the cost back later?
If I pay the extra 3pc stamp duty on a buy-to-let property, will I be able to offset the cost against my eventual capital gains tax bill when I come to sell it?
TR, via email
The good news is that, as the rules currently stand, investors will be able to offset the additional stamp duty, along with other purchase costs, against their capital gains on the property in the future. So even though it is an unwelcome extra upfront expense, a proportion can be clawed back eventually.
But beware – the Treasury could change the rules at any time. As investors tend to hold onto their properties for some years, there is large scope for further tax changes.
Have a question for our experts? Email moneyexpert@telegraph.co.uk