Most landlords must now pay a higher rate of stamp duty. Find out how you may be able to offset some of the cost.
With the higher rate of stamp duty now in effect as of 1 April 2016, the flurry of buy-to-let activity seen in the early months of the year is likely to slow somewhat.
But the surcharge is unlikely to stop the market dead
We should remember that until December 2014, almost everyone paid more stamp duty than they do now.
Under the ‘slab’ system, a property worth £275,000 would have attracted a stamp duty bill of £8,250. This isn’t quite as large as the £12,000 now payable under the higher rate. But it is still a lot more than the £3,750 that a lower rate buyer would pay.
So the higher rate isn’t a deal-breaker. There are many landlords who are mid-transaction and will still wish to complete. And there are even those who have waited until the market eased, confident that they could find a good deal even with the added costs.
With the right approach, it might even be possible to offset some or all of the extra tax.
Negotiate a lower selling price
Affected landlords who were mid-transaction when the change hit will have to pay the higher rates.
Though not desirable, this could provide leverage to convince the vendor to accept a lower offer. Doing so may be more convenient than starting the process from scratch, particularly if the parties are near the point of exchanging contracts.
There may also be opportunities to negotiate discounts before the process even begins. If the property market does slow down as experts predict, sellers will have a harder time attracting offers. In view of this, it may be possible for buyers to convince sellers to lower their asking prices.
Ask your mortgage advisor about which products are available
A slowdown in buy-to-let purchase activity won’t just affect supply and demand in the market. It will also mean that lenders experience a lull in business.
To attract more new clients, they may be willing to offer preferential rates. They might also offer deals with added incentives, such as cashback or free survey costs, to buyers.
Claim multiple dwellings relief for bulk transactions
Finally, it is worth mentioning a relief that is available for transactions where the buyer purchases two or more dwellings in one go.
Using multiple dwellings relief MDR, buyers can pay stamp duty on the average value of each property, rather than the whole transaction amount. For purchases of six or more properties, the buyer can choose to apply the non-residential and mixed use rates.
For instance, if a landlord were to buy two flats for a total of £500,000, without claiming relief, he would pay £30,000 in stamp duty. Multiple dwellings relief would apply as follows:
- Average property amount = £250,000 (500,000 / 2)
- Average stamp duty cost = £10,000
- 10,000 × 2 = £20,000 stamp duty payable
If another landlord were to buy six flats for a total of £900,000, without claiming relief, she would pay £62,000. Multiple dwellings relief would cut the tax payable to £30,000. She could also choose to apply the non-residential rates, in which case the tax due would be £34,500.
In this case, the best choice would be to claim multiple dwellings relief. But in some cases – such as a transaction of eight properties for a total of £3 million – the non-residential rates would be the most advantageous choice. (£139,500 versus £160,000 with the relief or £363,750 without.)
This is also an option for landlords who are considering transferring more than one property from individual to limited company ownership.
Buy-to-let tax is a complicated area. Always be sure to discuss your options and strategy with an appropriate professional.