One in Four Properties Attract “Buy-to-Let” Tax Surcharge

A new report released by HMRC this month reveals that one in four properties bought during the third quarter of 2016 was hit by the new Stamp Duty surcharge, which was introduced in April this year. The surcharge, which is payable by the buyer of a property, sees an additional 3% tax being applied to the purchase of ‘second homes’ or investment properties.

Although the report focussed on activity south of the border, it is of interest to the Scottish market because a similar charge was introduced here earlier in the year. Since April, anyone buying a property that is not their sole and primary residence has been liable to pay, in addition to the standard Land & Buildings Transaction Tax, a further 3% of the full sale price of the property.

The fact that one in four sales have attracted this additional tax has been welcomed in some quarters as evidence of the continued strength of the buy-to-let market. There had been fears that by increasing the tax paid on second homes, demand from investors would be dampened and the HMRC report goes some way to allaying these concerns.

The report also backs up our own experience at Warners. Immediately after the new tax was introduced we saw a drop in purchases by investors as many of them had rushed sales through immediately prior to its introduction. Since then however, investor demand has picked up again substantially. Indeed with the pound weakening in the wake of the EU referendum there has been an upturn in demand from overseas investors.

This has also been something that has been reported by leading letting agents in the Capital. Andrew Whitmey, Director at Umega Lettings said recently: “While we had anticipated that investors might be put off by the uncertainty that this result might cause, this has not been the case with several existing landlords looking to expand their portfolios. We have also seen a 40% increase in enquiries from overseas investors looking to take advantage of the weaker pound and not deterred by the perceived uncertainty that followed the EU Referendum.”

One note of caution to add to the report, however, is that the figures will also reflect the fact that some regular homebuyers who are simply buying a property to live in are also finding that they have to pay the new tax. With demand in the market higher than it has been for a number of years it is increasingly common to see people buy before they sell. In these cases the buyer will still have to pay the surcharge and, while they can then look to claim this money back when their old home sells, that charge can still be an unexpected obstacle for many people.

For example, if you are thinking of buying a ‘fixer-upper’ with a view to spending a few months upgrading it before moving in and selling your old home, it will be some time before you are able to claim back the additional tax. With the average price of a home in Edinburgh standing at £238,161 the 3% surcharge on an ‘average’ property would be more than £7,000 and that is money that many people don’t have, or won’t have budgeted for.

If you are thinking about buying or selling and have any questions about this year’s changes to property tax, or any other aspect of moving home, feel free to get in touch on 0131 667 0232 or by emailing property@warnersllp.com and one of our friendly, expert team will be delighted to help you.