Buy to let investors could save a total of £50m a year because of the stamp duty reforms, if property purchases continue at the current level.
The reforms, announced by Chancellor George Osborne in the Autumn Statement, swept away the much criticised ‘slab tax’ approach to stamp duty and replaced it with a more progressive system. It means 98% of purchasers will now pay less stamp duty. Only those buying properties costing more than £937,000 are likely to pay more.
The rates of stamp duty now only apply to the amount of the purchase price that falls within each band.
This means that a buy to let investor purchasing a house for £200,000 will pay nothing on the first £125,000, which is zero rated. They will then pay 2% on the next £75,000, making a total tax bill of £1,500. Under the previous system they would have paid 1% on the total purchase price, providing them with a bill of £2,000.
The new system therefore saves them £500.
Figures from the Council of Mortgage Lenders suggest 100,000 buy to let mortgages are being taken out each year with the average property costing about £200,000. With each of these properties now costing an average of £500 less in stamp duty, the total annual saving to investors should be in the region of £50m.
The reforms have been welcomed by the National Landlords Association. Chief Executive Richard Lambert said: “We are delighted that the Chancellor has listened to the NLA and recognised the inequity of the SDLT ‘slab’ system. The NLA has argued for many years that a progressive system would offer a fairer and far less distorting means of taxing property purchases.
“What’s more important is that the introduction of a straightforward marginal system of taxation will mean private landlords will now not only face lower costs when acquiring property, but also have funds to implement property improvements and keep rents down.”
The new rates are:
- Up to £125,000 : 0%
- £125,001 to £250,000 : 2%
- £250,001 to £925,000 : 5%
- £925,001 to £1.5m : 10%
- Above £1.5m : 12%.
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