For example, if you purchase a property for £150,000 prior to April 2016, you will pay Stamp Duty Land Tax (SDLT) on 2% of the excess paid over £125,000:
£150,000 minus £125,000 = £25,000 x 2% SDLT, creating a tax liability of £500.
Buy this property after the stamp duty change in April and the SDLT rises to £5,000:
£150,000 minus £125,000 = £25,000 x 2% SDLT, creating a tax liability of £500
£150,000 x 3% additional SDLT for a second home = £4,500
Total SDLT bill: £500 + £4,500 = £5,000
The example compares SDLT with the current system which only came into effect in December 2014, prior to this investing in a £150,000 property would have attracted a 1% tax across the whole value, ie £1,500. So the actual increase versus historical tax charges is £3,500.
Stamp Duty Rates (On Purchases)
Property Value: Up to £125,000
Standard Rate: 0% - Buy-to-let / Second Home Rate (April 2016): 3%
Property Value: Up to £125,000 - £250,000
Standard Rate: 2% - Buy-to-let / Second Home Rate (April 2016): 5%
Property Value: Up to £250,000 - £925,000
Standard Rate: 5% - Buy-to-let / Second Home Rate (April 2016): 8%
Property Value: Up to £925,000 - £1.5m
Standard Rate: 10% - Buy-to-let / Second Home Rate (April 2016): 13%
Property Value: Over £1.5m
Standard Rate: 12% - Buy-to-let / Second Home Rate (April 2016): 15%
If you sell the property, the cost of SDLT is tax deductible from any Capital Gains Tax (CGT) you have to pay. CGT is the amount you sell the property for, minus what you originally bought it for, deducting any allowances. For example if you bought a property for £150,000 and it is now worth £180,000 you have a capital gain of £30,000. An element of this will be tax free as you have an allowance of up to £11,100 capital gains per person/per annum for any assets sold (including stocks and shares). You can also deduct the costs of buying and selling from the gain you have made and this includes the Stamp Duty Land Tax, which in the above example is £5,000. Final confirmation of the planned stamp duty changes with the exact rules and regulations, won’t be known until the next budget on the 16th March 2016 though.
If you are thinking about purchasing before the stamp duty deadline on the 1st April 2016, then it would be beneficial to choose and experienced conveyancer and mortgage advisor to assist you through the process and our lettings experts in our local branches can help you maximise your ROI with our competitively priced landlord services.
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