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Stamp Duty

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b2ap3_thumbnail_stamp-duty_20160224-092158_1.jpgFrom 1 April 2016, anyone who buys additional property, including buy-to-lets and second homes will have to pay an extra 3% of the purchase price in stamp duty. The question is will this have a negative impact on the property market as a whole?

With Buy-to Let investors competing at the lower end of the property market with first time buyers, they may be feeling penalised by the Conservative government with this increase on top of the July 2015 budget  announcement of the tapered reduction in Buy-to let mortgage relief for higher rate tax payers.

After all the Buy-to Let investor provides valuable high quality much needed housing yet the government appears to be determined to make purchasing property for the rental market less of an appealing option.

For example, anyone buying a £250,000 second home or buy to let before April pays stamp duty of £2,500. This is based on paying zero per cent on the first £125,000 of the property value and 2 per cent on the portion between £125,001 and £250,000. But from April, landlords will have to pay 3 per cent for the first £125,000 and 5 per cent instead of 2 per cent on the amount between £125,001 and £250,000, meaning that they will have to pay £10,000 in total.

However, according to Rightmove stats if an investor were to purchase a property £125,000 meaning an additional £3,750 in tax becomes payable. An investor would expect capital growth in 2016 to be similar to that of 2015 (6.2% according to Rightmove) and an income of about 5.38% (Rightmove). So an investor would expect to see a return of around 11.5%.

The additional stamp duty burden should therefore take a little over 3 months to compensate for so quite possibly not impacting on the Buy-to-let market after all.

While affordable new housing is desperately needed, the Buy-to -Let sector will remain a popular sector providing affordable housing, and many savers will continue to invest their capital in rental property.