In his recent Autumn Statement, Osborne announced a stamp duty surcharge of 3% on additional properties.
This comes into force on 1st April 2016 and will apply to buy-to-let and second homes.
It will represent an additional 3% charge on all stamp duty bands.
Announcing the measure in December, chancellor George Osborne said:
“Frankly, people buying a home to let should not be squeezing out families who can’t afford a home to buy. So I am introducing new rates of stamp duty that will be three per cent higher on the purchase of additional properties like buy-to-lets and second homes.”
The extra stamp duty surcharge follows another recent attack on buy-to-let property investors, when income tax relief was cut in the Budget last year.
This limit on income tax relief on mortgage interest is being introduced in stages, before full implementation in April 2020.
The new rules will mean that, from April 2020, income tax at your marginal rate will be payable on all rental income, with a 20% tax credit available to offset against mortgage interest.
When combined, these two measures could have a big impact on the housing market.
We are already hearing examples of estate agents offering two valuations for local properties, at pre- and post-April levels.
The Council of Mortgage Lenders (CML) has been urging a reform of the stamp duty surcharge implementation plans, to mitigate potentially negative impacts on the housing market as a whole.
They believe that even without the new surcharge, the forthcoming adverse tax changes for private landlords and the potential macroprudential interventions in the buy-to-let market will result in a slowdown in buy-to-let activity.
They say there is a risk of overkill in dampening investor sentiment to the extent that the flow of available private rented property could be disrupted, without any necessarily corresponding increase in the ability of households to become home-owners.
In addition, with around a fifth of households currently renting in the private sector, there is the perverse risk that the stamp duty increase could cause landlords to charge higher rents, and so actually make it harder for tenants who want to buy to save the deposit needed to do so.
As a result, the CML is suggesting that under current proposals, some people will be caught by the requirement to pay the 3% surcharge even when they are buying their main residence.
For example, this could happen if they have a short-term overlap between owning their previous home and acquiring their new one, perhaps as a result of problems in the housing chain.
They say it would be better to allow people to defer their payment of stamp duty for 18 months subject to conditions, rather than require them to pay it upfront and then potentially reclaim it in the form of a rebate. This would be both fairer and more efficient.
The CML also say the government should clarify whether its policy intention is to favour institutions facilitating new-build activity, or new-build activity more generally.
If the policy focus is on the perceived benefit arising from the economic activity, then the proposal should recognise the potential for even small-scale and individual investors to contribute to this through off-plan purchases, and should not discriminate against them.
Commenting on the proposals and the CML response, CML director general Paul Smee said:
“Our longstanding view is that stamp duty is a blunt policy lever.
“Given the complexity of the proposals, we also suspect that in practical terms the surcharge could cause more problems than it solves.
“We urge the government at least to move away from a position where people will have to pay and then potentially claim back to one where payment is deferred, and only triggered if the buyer genuinely falls into the intended target category.
“If the surcharge proposal is designed to promote home ownership, we think that there should be better evidence as to why this requires a reversal of growth in the private rented sector.”
What do you think about the CML proposals for reform of stamp duty surcharge implementation?
Will the income tax changes for buy-to-let investors and additional 3% stamp duty on the purchase of additional homes have a big impact on the residential housing market?