How will stamp duty changes affect landlords?

Rishi Sunak’s 2020 Budget announcement gave a much-needed helping hand to the arts and, more significantly for landlords, a stamp duty holiday for purchases of second and additional homes. For the private rented sector this was incredibly welcome news, but how have things changed a year on? 

 

A stamp duty holiday extension

In the 2021 Budget, the Chancellor announced that the stamp duty holiday that was introduced in 2020 would be extended until the end of June 2021. This holiday means that regular home buyers (as opposed to buy to let or additional home buyers) will avoid paying any stamp duty on home purchases below £500,000 until the start of July. Buy to let and additional home buyers are charged a 3% levy on standard rates, giving stamp duty rates until 1 July as follows:

Property value

Stamp duty rate

Up to £500,000 3%
The next £425,000 (the portion from £500,001 to £925,000 8%
The following £575,000 (the portion from £925,001 to £1.5m 13%
The portion above £1.5m 15%

Source: HMRC

 

When initially announced, Sunak made it clear that these reduced stamp duty levies would be in force until 31 March 2021: significantly longer than expected.

However, with an increase in the length of time that these rates are on offer, it gives a further three months of relief for those looking to build their property portfolio, who could save multiple thousands of pounds. It’s not just individuals who will benefit from these changes either, limited companies will also reap the rewards, as property investors who purchase through limited companies will also be exempt up to £500,000.

From July until the end of September, the zero rate (or 3 per cent rate for buy to let properties) will fall to £250,000, and it will return to pre-stamp duty holiday levels of £125,000 as of 1 October 2021. 

How landlords stand to benefit from stamp duty changes

Any saving on stamp duty is going to encourage buy to let investors to jump back into the rental market and these savings are currently substantial.

It’s a win-win for the market too, as heavier investment by more landlords means more rental properties on the market and there is a major demand for properties right now, with estate agent Hamptons stating that in November alone, buy to let landlords made 15 per sent of all England, Wales and Scotland property purchases – the highest proportion since December 2016.

There have been dozens of changes lavished on the private rented sector over the last few years, with increased regulatory obligations and tax increases leading to thousands of landlords leaving the sector. But more Brits than ever before are choosing the rental lifestyle.

However, conveyancing lawyers have suggested that an increase in the stamp duty holiday window could create an additional backlog in demand for completion, at a time when solicitors are already under pressure to complete sales before the window ends. In addition, ONS data has revealed that house prices increased by 8.5 per cent on average in the year to December 2020 – their highest yearly rate of increase since 2014 – and many are predicting that stamp duty holiday extensions could push house prices up still further. 

Nevertheless, the tax incentives unveiled by Sunak should act as a catalyst for change, bringing those landlords who left the market back out of the woodwork and reversing a damaging trend.  Whilst normal stamp duty rates no longer apply, the 3 per cent second home surcharge that first caused many landlords to turn their backs on the sector does remain in place, and many are predicting that a rise in capital gains tax could also be on the cards. This is something landlords have been fighting to reverse for a while now but it doesn’t appear to be going anywhere anytime soon.

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Embracing the new normal

With the extension of the eviction ban to 31 May and the forthcoming abolition of Section 21 on the horizon, these are tough times for private landlords.

However, the extension of reduced stamp duty rates is potentially good news for any landlord reading this who was considering expanding their portfolio, but was put off by the pandemic, giving a further opportunity to invest in their future.

For more information and advice for landlords navigating the COVID-19 pandemic, check out our report on everything landlords need to know about coronavirus.

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