Who will be caught out by the Stamp Duty?

Following Chancellor George Osborne’s new changes in the budget in March, there will be an extra 3% stamp duty on additional property purchase which is set to start next month on the 1st April.

A major change in budget eradicates a loophole that ‘significant investors’ could have used to avoid the extra tax. These ‘significant’ companies and individuals buying more than 15 properties are now no longer exempt.

However, the Buy-to-let sector also took a blow in that their hopes for a cut in capital gains tax (CGT) where dashed. CGT would have been cut from 28 per cent to 20 per cent for higher rate taxpayers and to 10 per cent for basic rate taxpayers, however, Osborne then revealed that residential property would be excluded from this.

(The graph below outlines the changes)

What the graph shows is that ultimately anyone owning a second property that is not their main residence and buying another, or replacing the one they do not live in, is likely to get caught up in the changes.

This means if you already own a portfolio of buy-to-let properties, or have a second home, but plan to buy yourself a new home to live in and sell your old one then you will not have to pay the extra stamp duty. It all comes down to how many properties you own and what your main residence is at the end of the transaction. Currently anyone buying a £200,000 second home or buy to let before April pays stamp duty of £1,500. After April there will be a new bill of £7,500. So a landlord would end up paying five times more than a private purchaser in this example.

It is not just landlords that will be hit but anyone owning a second home.

Parents buying a property for their children or a couple purchasing a home together where one is already a homeowner will be affected.

Other changes include an extension in the time period allowed for ‘chain’ attached transactions from 18 months to 36 months. This aimed to help those who may hit delays in the selling process, have to move for work or decide to bridge the gap when a chain falls apart.

The proposal treated married couples as a unit in purchases, meaning you couldn’t get your husband or wife to purchase a property in their own name to avoid the extra charges. The Chancellor has made one change where married couples who have separated and are living separately permanently but not divorced will be exempt from the extra charges.

Overall, there are few who will benefit from the new changes in the short term. But in the long run, most will be affected some way or another.