Stamp Duty Land Tax – Increased rates from April 2016

The Government’s aim to increase taxes raised from Buy to Let landlords continued in the Autumn Statement.  Following on from the restriction of tax relief on loan interest for residential properties announced in July and the removal of tax allowances for “wear and tear”, Stamp Duty Land Tax (SDLT) is to be increased for most purchases of buy to let investments from April 2016.

The Government have announced that increased rates of SDLT will come into effect from 1 April 2016.   Under the new rules, the rate of SDLT on the purchase of a buy to let property, or indeed on the purchase of a second home costing more than £40,000, will be subject to a 3% surcharge.

If the rate of SDLT would have been 1%, it will be 4% under the new rules. If the rate would be 3% now, it will be 6% post 1 April 2016.

It is proposed that there may be some exemptions for purchases by companies holding 15 or more properties, but HMRC are to issue a consultation document on whether this relief will be granted.

At this time, it is not clear how this new SDLT regime will link in to other areas of SDLT legislation, but the position will become clearer after 9 December 2015 when the draft legislation is to be published.

The practical point from this change is that, because of the changes to tax relief on loan interest, a number of our clients are currently working through the process of transferring buy to let properties to a limited company.   This process, known as incorporation, brings with it various tax issues including potential charges to SDLT and also Capital Gains Tax.

Prior to the Autumn Statement, landlords who were being impacted by the restriction on tax relief for mortgage interest did at least have until 2017 to consider the impact of that change. The delay to the restriction of tax relief until 2017 did also allow time to work through commercial issues such as mortgages on the properties and what terms the bank will offer to a newly formed company taking on a mortgage.

The SDLT changes are such that it may become desirable to carry out the incorporation before 31 March 2016, if personal circumstances mean that incorporation is the best financial option for the landlord.  On that basis, we recommend that landlords should start considering the benefits of incorporation sooner rather than later, to have time to complete the process by 31 March 2016 if that is necessary.

This is a highly technical area on which landlords will need to take advice before taking action.   If the advantages and disadvantages of incorporation of your buy to let business might be of interest to you, our specialists Chris Hodgson and Dorothy Johnston would be happy to discuss this with you.

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