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Stamp Duty Reforms
For sales completing on or after 1st April 2016 a large proportion of buyers purchasing buy-to-let investments or second homes will become liable to pay an additional 3% stamp duty land tax (SDLT) for purchases over £40,000. Under the new system, the buyer only has to pay the higher rate of tax on each additional tiered amount, which limits any large increases to their overall tax bill.
Before 1st April 2016
£0 to £125,000 = 0%
£125,001 to £250,000 = 2%
£250,001 to £925,000 = 5%
£925,001 to £1.5 million = 10%
Over £1.5 million = 12%
After 1st April 2016
£0 to £40,000 = 0%
£40,001 to £125,000 = 3%
£125,001 to £250,000 = 5%
£250,001 to £925,000 = 8%
£925,001 to £1.5 million = 13%
Over £1.5 million = 15%
For example, a buyer who purchases a qualifying residential property for £150,000 before 1st April will pay SDLT above the £125,000 tier at a rate of 2% meaning £500 is payable. After 1st April there will be an additional 3% incurred for each stamp duty tier over £40,000.
In this worked example after 1st April:
- 0% is taxed from £1 to £40,000
- 3% is taxed from £40,001 to £125,000 = £2,550 SDLT
- 5% is taxed from £125,001 to £150,000 = £1,250 SDLT
This would result in a total SDLT bill of £3,800 and an increase of £3,300 in Stamp Duty payable after 1st April.
Landlords in the private sector will need to consider the impact of these reforms by either reducing their purchase offers on buy-to-let properties or increasing rent payable to try and recoup the additional monies spent on SDLT.