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18 December 2015

Act quickly to beat new buy-to-let tax

A Buckinghamshire lawyer has warned anyone thinking of investing in a buy-to-let property, to act quickly in the New Year if they want to beat the new buy-to-let tax which comes into force from 1 April 2016.

In his recent Autumn statement, Chancellor George Osborne announced that stamp duty on buy-to-let and second homes would be subject to an additional 3 per cent - meaning someone investing in a £250,000 apartment will be forced to pay an extra £6,300 to the tax man.

Mike Wragg, property expert at Gerrards Cross-based law firm B P Collins LLP, says he expects a flurry of activity as soon as the festive period is over.

“If, over Christmas, you’re talking about investing in another property; either as a nest egg for the future, to earn rental income, or you simply want a holiday home; then our advice is to move quickly in order to save yourself a considerable amount of money,” says Mike.

“We’re already talking to clients who are concerned about how this will impact them and what a lot of people don’t realise is that the deadline applies to completion, rather than exchange, meaning it’s even more important not to delay.”

He has a number of concerns about how the new tax will impact on the market and says both the older generation and private landlords are most likely to feel the strain.

“The older generation could be hit, especially if they are buying a new property in order to downsize or move closer to family, but have been unable to sell their existing home before purchasing the new one,” he said.

“On the face of what has been announced, the new property will effectively be treated as a second home and, as the full details of the plans have yet to be revealed, it’s not clear how or when they will have the chance to claim that money back once their first property is eventually sold.”

In addition, he believes the tax could put “ordinary people” off investing in property as a way of saving for the future, which in turn may lead to a shortage of rental properties with private landlords.

“The Chancellor says the idea is aimed at encouraging more owner occupiers, but given that the tax doesn’t apply to corporations or those who already have a property portfolio of more than 15 homes for rent, we may well end up seeing rental prices in that sector increase instead,” added Mike.

“It’s becoming harder and harder to become a buy-to-let landlord now, also not helped by the change of rules which has seen the removal of tax relief for landlords on mortgage interest payments.

“And, unlike stamp duty on your principal residence, where you don’t pay tax on the first £125,000 and figures are then calculated on a sliding scale, this new tax will apply to everything except the first £40,000 of the price, making it even more costly.”

Given that Gerrards Cross already has the most expensive postcode in Buckinghamshire, with average house prices of nearly £1 million, Mike says he also expects prices to continue to rise above the national average.

He concluded: “Outside the South East, the property market is more static but what’s happening in this area is that more foreign buyers are investing in London property, so other investors are looking further afield to buy in places such as Buckinghamshire.

“That’s having a knock-on effect for the local population who are finding it more and more difficult to get on the housing ladder.”

For legal advice on buying a property, contact Mike Wragg on 01753 279021or email mike.wragg@bpcollins.co.uk.

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