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Business Tax  •  Personal tax  •  Property  •  Tax Planning  •  Taxation

Tax planning tips for property investors facing 3% higher stamp duty

By Lesley Stalker on 21 December 2015

Buy to let landlords are proving a very useful source of tax revenue for the government at the moment, as a number of punitive measures are introduced. Most recently, the Autumn Statement heralded a new higher rate of stamp duty land tax (SDLT) for buyers of second homes.

From April 2016, anyone buying a second property, whether as a second home or a buy-to-let, will face an additional 3% SDLT charge. So for an average property costing £275,000, the stamp duty will increase by £8,250, from the current amount of £3,750, to £12,000.

This is a further cost for residential landlords in addition to the previous announcement that from April 2017, they will no longer be able to claim relief for mortgage interest at their highest rate of tax. This cut is to be phased in over 3 years so that by 2020, the total amount of tax relief available will drop to 20% for all taxpayers, regardless of their existing income tax rates – a big drop from the current maximum rate of 45% tax relief. Property held in a company will not be affected by this change – companies can continue to offset the cost of mortgage interest payments against corporation tax, although the rate of corporation tax is of course 20%.

5 key tax planning tips for property owners and investors

  1. Properties in Scotland will not be subject to the increased SDLT charge as they are covered by a separate land and buildings transaction tax levied independently by the Scottish government;
  1. For new property investments, owning the property through a company structure can be more tax efficient in certain circumstances, provided the investor has evaluated the pros and cons of company ownership to understand the longer-term tax implications;
  1. From April 2016, an additional ATED charge of £3,500 will be payable on properties valued at between £500,000 and £1 million that are held in a company. This change will impact many landlords and investors with property in the London and the south east. There are however exemptions available for property developers and qualifying property rental businesses. In these cases there is still a reporting requirement, but there is no tax charge;
  1. Transferring an existing second property into a company structure is unlikely to yield tax benefits because although it will protect the interest relief, it creates SDLT and capital gains tax charges at the time of transfer. This will erode and potentially eliminate any financial benefits;
  1. Depending on the outcomes of an ongoing consultation, those with a portfolio of 15 or more properties may be able to avoid the additional SDLT charge. More detail about possible tax planning opportunities will be announced once the outcomes of the consultation are known;
  1. Investors considering the purchase of additional property may be wise to bring forward any intended purchases in the short term to avoid the introduction of higher stamp duty in April 2016;
  1. It is worth bearing in mind that capital gains tax relief can be claimed when property is sold, for all SDLT charges incurred when it is first bought.

The tax rules surrounding buy-to-let investment have become very complex in recent years, with the phased removal of mortgage interest relief, increased application of the ATED charge and now, higher rates of SDLT. If you own investment property and are concerned about recent changes to tax legislation and the possible impact on your tax liability, please contact Lesley Stalker by emailing las@rjp.co.uk to discuss your individual circumstances in detail.

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60 Day Deadline for CGT Returns and Tax Payments

If you sell a property and incur capital gains tax on the transaction, you will need to file a tax return and also pay any tax that is due within 60 days of completion, or penalties will arise. Need help with your property taxes? Talk to us.

Buy to let landlords are proving a very useful source of tax revenue for the government at the moment, as a number of punitive measures are introduced. Most recently, the Autumn Statement heralded a new higher rate of stamp duty land tax (SDLT) for buyers of second homes.

From April 2016, anyone buying a second property, whether as a second home or a buy-to-let, will face an additional 3% SDLT charge. So for an average property costing £275,000, the stamp duty will increase by £8,250, from the current amount of £3,750, to £12,000.

This is a further cost for residential landlords in addition to the previous announcement that from April 2017, they will no longer be able to claim relief for mortgage interest at their highest rate of tax. This cut is to be phased in over 3 years so that by 2020, the total amount of tax relief available will drop to 20% for all taxpayers, regardless of their existing income tax rates – a big drop from the current maximum rate of 45% tax relief. Property held in a company will not be affected by this change – companies can continue to offset the cost of mortgage interest payments against corporation tax, although the rate of corporation tax is of course 20%.

5 key tax planning tips for property owners and investors

  1. Properties in Scotland will not be subject to the increased SDLT charge as they are covered by a separate land and buildings transaction tax levied independently by the Scottish government;
  1. For new property investments, owning the property through a company structure can be more tax efficient in certain circumstances, provided the investor has evaluated the pros and cons of company ownership to understand the longer-term tax implications;
  1. From April 2016, an additional ATED charge of £3,500 will be payable on properties valued at between £500,000 and £1 million that are held in a company. This change will impact many landlords and investors with property in the London and the south east. There are however exemptions available for property developers and qualifying property rental businesses. In these cases there is still a reporting requirement, but there is no tax charge;
  1. Transferring an existing second property into a company structure is unlikely to yield tax benefits because although it will protect the interest relief, it creates SDLT and capital gains tax charges at the time of transfer. This will erode and potentially eliminate any financial benefits;
  1. Depending on the outcomes of an ongoing consultation, those with a portfolio of 15 or more properties may be able to avoid the additional SDLT charge. More detail about possible tax planning opportunities will be announced once the outcomes of the consultation are known;
  1. Investors considering the purchase of additional property may be wise to bring forward any intended purchases in the short term to avoid the introduction of higher stamp duty in April 2016;
  1. It is worth bearing in mind that capital gains tax relief can be claimed when property is sold, for all SDLT charges incurred when it is first bought.

The tax rules surrounding buy-to-let investment have become very complex in recent years, with the phased removal of mortgage interest relief, increased application of the ATED charge and now, higher rates of SDLT. If you own investment property and are concerned about recent changes to tax legislation and the possible impact on your tax liability, please contact Lesley Stalker by emailing las@rjp.co.uk to discuss your individual circumstances in detail.