On the 1st April 2016, the higher rate of stamp duty on buy to let properties and second homes came into force. A measure that’s designed to slow the market and make it easier for first-time buyers to get their feet on the property ladder, this tax will have an impact on investors and developers of all sizes. So, we’ve taken a look at what this could mean for you...
Before the higher rate came in, the Government debated whether or not the tax should apply to large landlords as well as small-time investors. Eventually, the decision was made that the tax would apply to all buyers regardless of portfolio size, something that could well have an impact on the larger buy to let industry.
However, there is also good news for entrepreneurs and developers looking to invest in multiple properties. Known as the ‘Multiple Dwelling Relief Loophole’ this useful law could save investors thousands.
Stamp duty increased
Since 1st April 2016, investors who want to purchase a second home or a buy to let property have had to pay an extra 3% in stamp duty. This tax applies across the board, affecting everyone from small, independent landlords to large corporations.
Multiple Dwellings Relief
Multiple Dwellings Relief was introduced by Chancellor George Osborne in 2011. It can be used when two or more properties are purchased in a single or linked transaction. According to a recent statement from HMRC, the higher rates will apply to claims for multiple dwellings relief, though “where 6 or more dwellings are purchased in a single transaction the purchaser can choose whether to apply the non-residential rates of SDLT”.
There is the potential for significant savings when the Multiple Dwelling Relief loophole is used. In essence, it allows investors to pay a lower rate of SDLT by allowing them to treat each property within the sale more like an individual purchase.
Multiple Dwelling Relief is calculated by dividing the total purchase price by the number of properties bought and then calculating the SDLT that would be payable on that figure. The calculated tax is then multiplied by the number of properties purchased to create the final rate of tax payable. For example, if you bought five properties for £1million, you’d divide the total price by five to give £200,000. The amount of SDLT due on a purchase of £200,000 is £1,500. Multiplied by five, this gives £7,500, £2,500 less than you’d normally pay on a purchase of £1 million.
When you take the new buy to let stamp duty rate into account, these savings are even more significant, with investors able to save tens of thousands of pounds on their purchases.
Though Multiple Dwelling Relief has been little known up to now, the increase in stamp duty is sure to encourage more investors to use this money saving loophole.
Interested in finding out more about investing in property in Norfolk? If so please send us a message or get in touch with Richard or Wayne on 01603 567804.
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