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Landlords set to face higher stamp duty costs

Landlords set to face higher stamp duty costs

Category: Buy To Let

Updated: 17/07/2017
First Published: 26/11/2015

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

One of the biggest announcements in yesterday's Autumn Statement was the 3% rise in stamp duty for "additional properties", which effectively means that those who want to purchase a second property or a buy-to-let (BTL) investment will need to stump up a lot of extra cash. But will it affect tenants as well as landlords? Unfortunately, that could well be the case.

What it means for landlords

The rise in stamp duty will come into effect from 1 April next year. The Chancellor made a point of saying that it wouldn't affect the corporate property development sector, but smaller, amateur landlords certainly won't be immune.

According to calculations from Old Mutual Wealth, the additional rate will mean that the sale of a £150,000 house will result in stamp duty of £5,000, up from £500 today, while a £200,000 purchase will result in a tax bill of £7,500 (up from £1,500) and a £300,000 house will mean the buyer has to pay a whopping £14,000 in stamp duty land tax, up from £5,000 today (find out more about current stamp duty rates and other BTL tax considerations here).

The latest development follows the cut to BTL tax relief that was announced earlier this year, and means that investing in such properties could well become far less appealing for the majority of landlords. However, while the move is arguably to prevent landlords and foreign buyers from snapping up properties that could otherwise be bought by those who are trying to get on the ladder – effectively increasing the supply of affordable property for everyone else – it could have a knock-on effect on tenants.

Tenants could pay the price

Despite the fact that the change could act as a deterrent to some landlords, those who don't mind paying the extra stamp duty may be looking for other ways to absorb the cost – and chances are, they could end up making their tenants pay for it.

David Cox of the Association of Residential Lettings Agents (ARLA) said that the change was "catastrophic news" for the private rental sector: "To make owning a BTL property financially viable, landlords will need to pass on the increased stamp duty costs to tenants, who will in turn see less spent on property maintenance and increased rents," he explained.

"The changes will also deter new landlords from entering the market, pushing the gap between dwindling supply of available property and growing demand even further apart, which will also – in turn – push up rental costs."

The nail in the coffin?

Rachel Griffin of Old Mutual Wealth said that the change may be "the final nail in the coffin" for some landlords, with many already being concerned that their margins are being squeezed. Not only that, but there had been thoughts that the pension freedoms would encourage retirees to re-invest their pension savings in buy-to-let, but this expectation may not now come to fruition:

"Prior to the introduction of pension freedom reforms in April this year there was significant speculation about a boom in buy-to-let investing from the over-55s," said Rachel, "but our own research suggests that in fact only 7% of those approaching retirement are eyeing buy-to-let income to fund their retirement, down from 11% in 2014. [Yesterday's] announcement will further dampen interest."

What next?

The latest change to the BTL market makes it more important than ever for those considering becoming a landlord to make sure it's financially viable, ideally without making tenants suffer too much as a result. One of the first steps should be to check out the buy-to-let mortgages available, as once you get an idea of how much your mortgage repayments could be, you can go from there to see if an investment still makes sense.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.