HM Revenue and Custom’s consultation period regarding the new changes to Stamp Duty Land Tax (SDLT) on second properties is now in full swing, ahead of final confirmation of the change in March’s Budget announcement.
Chancellor George Osborne announced last month that purchases of second property and Buy to Let (BTL) property would attract an additional 3% levy, in a move aimed at increasing home ownership levels in the UK.
Under the new rules, someone buying a property to rent out would pay an additional 3% at every level of SDLT, making it extremely unattractive to buy to let.
“Landlords had already been targeted with the restriction of tax relief earlier in the year, and with this move, it appears that Landlords are seen as the number one target for George Osborne in 2016” said Simon Butler, Associate Director at Contractor Mortgages Made Easy.
“We have, understandably, heard a lot of frustration from our clients over this, as investing in property has been a good way of Contractors making use of the large amounts of surplus income that they enjoy.”
One area that has been in the spotlight particularly is a ‘Let to Buy’ mortgage, whereby someone buys another property to live in, while renting out their current residence. This, as Simon explains, is something of a worry for contractors.
“Over the past ten years we have helped contractors move up the property ladder, as we have been able to negotiate increasingly more attractive mortgage options. It makes sense for those with large reserves within limited company accounts to retain the current property, and aim to realise the increase in value over the longer term.”
“That may no longer be an option, as under the new rules; the additional 3% charge would apply in all cases where the purchaser is not replacing their main residence. As always, the devil is in the detail, and looking at the consultation document released by HMRC last week, it appears that this is to be interpreted as selling.”
Amid fears of a crackdown on income tax following Chancellor Osborne’s earlier pledge to target dividend tax, the spike in Stamp Duty caught many contractors on the hop. With little mentioned in the Autumn budget about IR35, Contractors may face a nervy March, explains Butler.
“All the focus for Contractors was naturally around income tax, following the news earlier in the year that dividends would no longer be as attractive for those whose income was made up largely of them”
“The Autumn statement surprisingly contained no news of the widely expected crackdown on IR35, so it would appear that March 16th will be an interesting day for Contractors, as George Osborne could hit many hard in the pocket.”
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