Stamp duty and tax changes for buy to let investors in the Autumn Statement and July Budget

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In the Autumn Statement, the chancellor said that people buying buy to let property or a second home would have pay a higher rate of stamp duty. The July Budget also brought changes to tax relief for landlords. How could you be affected?

Stamp duty – proposed changes

The plans are that if you buy a second property or a buy to let home, and complete the sale on or after 1st April 2016, you’ll have to pay stamp duty at a higher rate than if you bought a home to live in.

The plans say:

  • A higher rate of stamp duty (stamp duty land tax, to give it its full name) will be charged when you buy a second property on or after April 1st.
  • The higher stamp duty rate will be 3% above the current stamp duty land tax rates.

SAVVY TIP: You can find out how much you’ll pay under the current stamp duty system by using the Money Advice Service’s stamp duty calculator. To find out what you’d have to pay if you buy a buy to let property after April 2016, you have to add 3% stamp duty on top.

  • Stamp duty will be applied on all second and buy to let homes costing more than £40,000. Currently, in England and Wales, you don’t pay stamp duty on a property costing less than £125,000.

SAVVY TIP: In Scotland, there’s a different system of property tax. Instead of stamp duty you pay land and buildings transaction tax.

  • The government is considering exempting corporates and funds that own more than 15 properties.

Payment of stamp duty:

This proposed change won’t only apply to buy to let landlords, it will apply to anyone who has a home. From 6th April 2017, the Autumn Statement plans say that stamp duty will have to be paid within 14 days of buying a property, not the current 30 days.

Changes to tax in July Budget

In his Budget in July, the chancellor announced two changes to tax that will affect buy to let investors. One change comes in next April (2016), the other in April 2017.

  • Tax relief on mortgage interest payments. Currently if you own a property and rent it out, you can claim tax relief on mortgage interest you pay. This can be claimed at your highest tax rate. However, from April 2017, a change will be phased in so you can only claim tax relief on mortgage interest at the basic rate of tax.
  • Furnished properties wear and tear allowance. Currently, landlords renting out furnished properties can deduct 10% of their rent from their profit as an allowance for wear and tear. This can be claimed whether or not they’ve spent any money replacing furniture and fittings, but from April 2016 they will only be able to claim for actual money spent.

Phasing in the change on mortgage interest tax relief

The change to mortgage interest tax relief will be phased in over three years:

  • In 2017/2018 you’ll be able to deduct 75% of mortgage interest at your highest tax rate, with the other 25% available only as a basic rate tax reduction
  • In 2018/2019, you’ll be able to deduct 50% of mortgage interest at your highest tax rate, with the other 50% available only as a basic rate tax reduction
  • In 2019 to 2020, you’ll be able to deduct 25% of mortgage interest at your highest tax rate, with the other 75% available only as a basic rate tax reduction
  • From 2020 to 2021 all financing costs incurred by a landlord will be given as a basic rate tax reduction

Related articles:

Five things you need to know about stamp duty

Minimising tax if you own a second property; how to reduce your capital gains tax bill

You can earn up to £4,250 a year tax free using the ‘rent-a-room’ scheme and taking a lodger

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