Recent research carried out by the UK Residential team of Savills World Research sought answers and clarification surrounding the subject of Additional Tax on Additional Homes that was announced in the 2015 Autumn Statement. Below is a summary of its findings.

Very few people could have predicted that the Government would further target increased stamp duty for purchases on investment property in the Statement, having already substantially revised stamp duty in late 2014, and announced measures to restrict tax relief on mortgage interest for buy-to-let (BTL) investors.

With the prospect of the Bank of England looking at greater regulation of BTL mortgages, the announcement of a 3% stamp duty surcharge (SDLT) on the purchase of ‘additional homes’ completing post 1st April 2016, came as a nasty surprise for the sector. Many will have pinned their hopes on a wide-ranging consultation exercise.

Those who had hoped for a consultation regarding the whole raison d’être for the tax will be disappointed; with the now published consultation paper making it very clear that the proposal is an important strand of a five point plan to ‘refocus houses towards low-cost home ownership for first time buyers’.

Though the final details of the tax are yet to be confirmed, the consultation paper has provided much greater detail on how and when the tax will apply.

THE TECHNICAL DETAIL

The consultation confirms that:

Where a purchaser is replacing their main home then the tax will not apply. However, if an individual has not sold one primary residence before buying the next, they will have to pay the additional stamp duty up front, with the ability to reclaim it if they sell their original home within 18 months of the acquisition of their new home.

This may leave some space for 'accidental landlords' to let out their property when market conditions make a sale difficult. However, doing so will carry risks if this narrows the period of marketing for a subsequent sale which then risks failing to meet the 18-month sale deadline.

Furnished holiday lets will be within the scope of the additional tax revisions though time share properties will not.

Unless separated, married couples and partners will only be able to have one main residence between them; that main residence being a question of fact (i.e. with no ability for them to elect the main residence).

Where a property is purchased jointly and any of the purchasers end up owning two or more properties, it is proposed the additional duty will be payable on the entire purchase price (although consultation is sought on whether tax should be paid on the whole sum in circumstances where one of the joint purchasers is buying their first property).

Where somebody owns a property abroad (or in Scotland) this will be taken into account in determining whether they pay the SDLT surcharge on properties they buy in England, Wales or Northern Ireland. This is particularly relevant to overseas buyers of UK property and more specifically the prime central London market.

MARKET IMPLICATIONS

In the mainstream, in the buy-to-let market where debt plays a greater part in the financing of purchases, this will compound the effects that the restrictions on mortgage interest relief will have on people’s ability to expand their portfolios, further pushing committed investors to lower value, higher yielding markets.

A recent YouGov survey of 1,000 landlords undertaken by the Council of Mortgage Lenders suggested that the restriction of mortgage interest relief would cause only 13% of all landlords to consider selling the whole or part of their portfolio. In comparison, 14% indicated that it would either stop them adding to their portfolio or slow the rate at which they do so. It is this group who will be further affected by the additional stamp duty charges.

This is likely to limit the supply of new rental stock from private landlords, against the context of increased demand (notwithstanding government schemes to support homeownership). As a consequence it is likely to underpin future rental growth. 

The effect of the tax changes are outlined in the table below.

Source: Savills World Research