What Does the New Stamp Duty Holiday Mean for Landlords?

25 August 2020 Simon Banks Read time: 3 min
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Simon Banks

It was the news that everyone was expecting, yet couldn’t come soon enough. On July 8, UK Chancellor of the Exquisitor, Rishi Sunak, announced a stamp duty holiday effective immediately. It will last for six months (until the end of March 2021) and provides tax breaks for property buyers.

The stamp duty holiday isn’t solely aimed at those moving home and first-time buyers, however. Landlords are set to benefit from the new legislation regarding Stamp Duty Land Tax. And it could save thousands of pounds.

If you’re a property investor or are thinking about making a buy-to-let purchase, we’ve got the lowdown on all things stamp duty. In this guide, you’ll learn what the new changes mean for you and how it could boost the buy-to-let sector.

What is stamp duty?

Stamp duty is a tax paid by anyone who purchases a property in England and Northern Ireland. It varies slightly depending on the type of homeowner, with first-time buyers, those moving from one home to another and second-home owners (which accounts for landlords) all paying differing amounts of stamp duty.

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What did the old stamp duty look like?

Initially, there was nothing to pay for the first £125k, 2% on the next £125k and 5% on properties that cost between £250,001 and £925k for first-time buyers and home movers.

For landlords, the amounts were higher, as they were required to pay an extra three percent on top of the initial charges. That meant buying a property for £350,000 required a stamp duty payment of £18,000.

How does the new stamp duty work?

The new stamp duty holiday changes the game for buyers from all circles. First-time buyers and those moving home won’t pay anything on properties up to £500k. Five percent will be due on homes between £500k and £925k, and properties worth between £925k and £1.5m will be taxed at 10%.

Stamp duty zero percent

How does it work for a landlord?

Landlords don’t have it quite as easy as first-time-buyers and home movers, though there is encouraging news. You will still need to pay the extra three percent surcharge, but you won’t pay any further duty on the first £500,000 of the property’s value.

Let’s revisit that £350k property for a second. Previously, you were required to pay stamp duty of £18,000. Under the new rules, however, you will need to pay £10,500, which is a saving of £7,500. Decent change, if you ask us.

What do the new stamp duty rules mean for landlords?

The buy-to-let industry has taken a few hits in previous years, including changes to tax on mortgage relief and wear & tear and the initial three percent surcharge on stamp duty in 2016. This eight-month stamp duty holiday will come as welcome news for landlords, hopefully providing you with more confidence in the property market in the wake of Covid-19.

The ability to save between a few hundred and a few thousand pounds shouldn’t be understated, especially in cities like London, where prices are higher. With the demand for rental properties growing, an increase of good-quality landlords who provide excellent homes for renters will provide a welcome boost to the market.

What does the stamp duty holiday mean for investing?

Covid-19 put the UK property market into a deep sleep during March, April and May for investors, first-time buyers and homeowners. Transaction levels fell off a cliff, as the Government advised everyone to stay indoors to tame the spread of the virus.

Investments growing

Therefore, it won’t come as a surprise to learn that the property market needs a boost now that normality is resuming. The stamp duty holiday should do just that, especially for investors. It could lead to a rise in individual buy-to-let landlords who are on the lookout for investment opportunities.

The Treasury believes that changes mean nine out of 10 purchasers will pay no stamp duty, which averages to savings of £4,500. Landlords could very well save that amount of money, and quite possibly, even more.

The summer holiday everyone was waiting for

It might take a little while for the property market to hit full speed, but the rental section is in high demand. Demand is outstripping supply, which means this stamp duty holiday has come just at the right time, with savvy investors able to contribute to the rental sector with high-quality housing.

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