New 8% Stamp Duty Rate From April 2016
Posted 25 November 2015 - 05:02 PM
On The Money program on R4 today someone asked if this would apply to someone who is having problems selling their house and for a short period owns two houses. The experts didn't know the answer. I suppose this rate may also apply to someone buying a plot of land for a self build while still living in their own house?
If I understand correctly on a £200K plot you currently pay 0% on the first £125K and 2% on the remaining £75K so £1500 in total. If the 2% rate increases to 8% that would become £6000.
The SDLT is 12% on the balance over £1.5m so not sure how the 8% rate will apply to very expensive houses.
Currently you can own two houses for up to two years before CGT is an issue (You can nominate which is your PPR for that long). However SDLT is paid on completion of the purchase and you might not know how long you will own two houses at that point.
No doubt all will become clear as the rules are decided between now and April.
Posted 25 November 2015 - 05:12 PM
Posted 25 November 2015 - 05:20 PM
And of course it's announce a change today, that won't come into effect until April. Anyone remember the ending of double MIRAS relief and the boom (and subsequent crash) that caused?
Edited by ProDave, 25 November 2015 - 06:40 PM.
Posted 25 November 2015 - 10:48 PM
He got it repossessed within a year (after he spent about £10,000 on it). It got sold at auction for £36,000.
So in under a year it had gone from £44,000 to £85,000, then after 3 years empty to £36,000
Wish I had sold him mine, let he do £10,000 of work on it, then I could have bought it back from his bank and had a better house and almost £50,000 in the bank.
What a nonce.
Posted 26 November 2015 - 11:33 AM
Small LLs thought that had until 2020 as the tax relief changes from July, making existing portfolios with borrowing more expensive, were phased in over 4-5 years. Now if they incorporate after April 2016 there will be a further 3% when they sell their properties to their company ==> more likely to sell into the market. A tax of 6 months rent up front (average return = roughly 6%) is quite a hit.
So there will be stock coming out of BTL, with it being more expensive to get stock in. Osbo is trying to get supply into the wider market while Planning Reforms and encouragement for developers comes through with 250k houses a year. Once he has achieved that Labour have fewer rotten tomatoes left. I think he is also deterring pension-fund-extractors from doing 1 or 2 properties.
Politically he is eating Labour's lunch while stealing the political centre ground, and hoovering up the taxes they would have made from targetting LLs to cut the deficit while doing relatively little austerity. That Labour are purging themselves and quoting Chairman Meow on national television to one of the larger poltical audiences of the year doubtless helps. He's also making property rental a much longer term game imo.
The ones who are not hit are landlords with no leverage, or incorporated businesses with a reasonable number of properties, which seems to mean more than 15. Build your own to let looks attractive, too.
But who knows what Osbo will do come March.
Be risk averse, Mr Bond .... be very Risk Averse.
Edited by ferdinand, 26 November 2015 - 11:34 AM.
Posted 26 November 2015 - 03:28 PM
Reality is, No small landlords, no rental accommodation in the areas where they are needed. Corporate landlords are only really interested in owning complex or estates, not 1 or 2 houses dotted around existing estates. They are not interested in bringing dilapidated homes back in order and they are certainly not interested in building in lots of one or two in little infill plots. The management of them wouldn't be cost effective.
What will happen is that the smaller landlords who can't cost effectively incorporate will sell up. GO gets some CGT and the tenants are out of a home. Although if you believe the word of GO these tenants have cash in hand and will be buying up the houses...
The empty houses might be bought by incorporated landlords, but that depends on where the properties are. Rents will certainly go up as the resulting culling of rental property supply will increase tenant demand. Landlords incorporating will know this and will also have to replace the funds used to transfer their properties into a company structure which is CGT and now a higher rate of SDLT. Its not coming directly out of their own pocket.
All in all its a stealth tax on tenants with the blame being pushed onto the landlords. All to pay for the government deficit.
Posted 26 November 2015 - 04:37 PM
London prices started rising around the time the Greeks and Italians started moving their spare cash into safe havens (2011-12), this was followed by investors in the far East and Russians (2013-date).
The government waited too long to tax the group and I still think they are missing a trick by not applying CGT to non-doms selling UK properties (many other countries do)
With respect to Buy-to-let (“BTL”), the move to encourage corporate ownership like the German model is better for tenants. It’s easier to regulate and enforce standards when you are targeting 5-10 large companies than 10,000 small LLs. This mean higher home standards, proper contracts and maintenance. Not to mention pricing. Renting in this reality is here to stay.
On the downside, large companies have lobbying power and can also act as bullies, but to be honest, many small LLs act as bullies issuing eviction notices if a tenant requests maintenance. Most of my friends renting have seen the dark side of LLs.
With respect to second homes, it’s clearly a welcome tax.
Will rents go up? Possibly yes, will it cool the market and deter casual BTL investors outbidding first time buyers? I hope so.
Here is a positive spin. If the rising prices can be tamed, the required yield for BTL investor will be maintained even with the new stamp increase. The issue here is that a house in Wolverhampton going from 120k to 132k (10%) is not the issue, in the major cities where it goes from 500k to 550 in less than a year is worrying. 50k increase is £12.5k increase in annual income for mortgage purposes on the basis of 4x multiple.
Example1: House costing 250k generating a rent of £750 gives a yield of 3.5% (stamp cost of £2.5k)
Example2: House costing 240k (assuming small drop in house price) generating a rent of £750 gives a yield of 3.75% (stamp cost of £8.8k)
Proper modelling would take a 5-10 year view and amortise the stamp duty over the term
P.S. I will be affected by the change, but I agree with the spirit and principle of the tax.
Posted 26 November 2015 - 04:45 PM
Revenge evictions were banned this year, particularly on the basis of maintenance requests. A very small proportion of landlords were responsible for this. Never really understood why a buy to let business would fail to make repairs. After all, this is still tax deductable! But I'm sure gordon osbourne will take that away as well. Leveling the playing field don't you know.
Then residential rental industry is already highly regulated. Its the under the radar landlords (Or slumlords) who don't follow the rules, and will continue to flout them regardless. Punishing the good landlords doesn't fix a thing and may make matters worse.
Posted 26 November 2015 - 05:19 PM
Part of this regulation refers to gas, electric certification, deposit schemes and recently the ban of revenge eviction. All after protests from tenants living in substandard properties, not getting deposits returned even when repainting the entire property (returning in a better state).
Non of this 'regulation' has in anyway affected a reponsible LL except the £100-£200 running cost of gas/electric checks.
The tax bit I think is going over board. BTL should enjoy deductibles afforded by regular companies. It is a business after all.
Here is my private suspicion, Osborne wanted the Bank of England to regulate the BTL market fearing a dump of properties when rate rise would derail the economy (possibly close to election time), cBoE's Carney said there was no reason to intervene.
Just last month Osborne gave the BoE (actually the prudential part) powers to regulate. This came as a surprise to the industry.
Now he bumps the stamp duty, I am starting to think he is trying to slow the market as the BoE did not do so.
On a separate note, existing LL can enjoy higher rents for existing stock.
Posted 26 November 2015 - 07:22 PM
Just had a news letter from an IFA commenting on the new stamp duty rate and that says...