Recently there has been speculation and counter speculation regarding the future of stamp duty on UK property purchases. Initially, the Chancellor of the Exchequer Sajid Javid appeared to suggest that stamp duty would be switched from buyers to sellers. Whether or not this was a misunderstanding, or a very quick U-turn, the Treasury was at pains to immediately clarify the situation. Yes, it does appear that the UK government is looking at ways of reforming the stamp duty charge but switching from buyers to sellers is not something currently being considered.
Current stamp duty rates
For some time now the UK government has been using stamp duty rates to encourage first-time buyers. As we stand today the sliding scale of stamp duty is as follows:-
- 0% up to £125,000
- 2% between £125,001 and £250,000
- 5% between £250,001 and £925,000
- 10% between £925,001 and £1.5 million
- 12% above £1.5 million
The system works on a sliding scale, so with a property worth £500,000 the charge would be as follows:-
- £0 on the first £125,000 (0% band)
- £2,500 on the next £125,000 (2% band)
- £12,500 on the next £250,000 (5% band)
As a consequence the total stamp duty payable on a property worth £500,000 would be £15,000. However, all second home purchases/buy to let investments attract an additional 3% on each band. Therefore a second home/buy to let investment also worth £500,000 would attract stamp duty as follows:-
- £3,750 on the first £125,000 (0% band +3%)
- £6,250 on the next £125,000 (2% band +3%)
- £20,000 on the next £250,000 (5% band +3%)
The purchase of a second home/buy to let investment worth £500,000 would attract a stamp duty charge of £30,000. This is double the rate for those owning just one property!
Confusion, confusion, confusion
News that the Chancellor was looking at “switching stamp duty charges” was welcomed with open arms by buy to let investors who have been targeted by the authorities in recent years. When you bear in mind that the average property in London is worth just over £450,000, any significant sized buy to let investment in the capital has seen a significant uplift in the stamp duty charge. This comes at a time when demand for rental properties is still extremely high, first-time buyers are being priced out of the market and quite frankly the flow of new build properties is nowhere near meeting demand.
So, to have the rug pulled out from underneath them within just a few hours of the Chancellor’s “announcement” has not gone down well with private investors, private landlords and landlord associations. A subsequent promise to “review” the stamp duty system has done little to quell the growing anger.
Property investors seen as cash cows
This was the perfect opportunity for the new UK government to step forward, think outside of the box and do something to help property investors in the UK. In reality, switching the stamp duty charge from buyers to sellers would have had very little impact really. Sellers would simply have added the stamp duty charge to the cost of the property – meaning that buyers were still indirectly paying the fee. So, what can the government do?
Simple, reduce the ever-growing burden of stamp duty!
Charges associated with UK property investment are amongst the highest in the developed world at a time when private rental properties are in demand. This is something the UK government needs to address, adopt a policy of common sense and stop seeing the UK property market as the cash cow that keeps on giving.
In all honesty Boris Johnson has done much better than many people had expected after becoming Prime Minister. This gaffe by the Chancellor of the Exchequer is probably the only major issue for his government to date (depending upon how you see proroguing the Houses of Parliament and his Brexit policy!). However, there is no doubt that it has angered property investors and private landlords.
There is now extreme pressure on Sajid Javid to offer at least some assistance to property investors/private landlords in his first budget. Will he deliver?
At the recent Conservative party conference he had admitted that scrapping Inheritance Tax had been on his mind.
He was reported to have said. “I do think when people have paid taxes already through work or through investments – capital gains and other taxes – there is a real issue with then asking them to, on that income, to pay taxes all over again.
“So, sensible changes have already been made but it’s something that’s on my mind.”
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