Bow Property - Hot Topic - Stamp Duty...

In the London property market the hot topic of conversation has most recently centred around George Osbornes decision to levy an additional 3% stamp duty tax on buy-to-let and second homes. The chancellor was quoted in the Autumn statement saying, 'people buying a home to let should not be squeezing out families who can't afford a home to buy.'

This decision has created a desperate scramble in the marketplace for prospective landlords and investors who are desperately attempting to purchase and complete on secondary properties before the April deadline. Hence, we are seeing uncharacteristic levels of demand early on in the year for obvious reasons. For an investor looking at properties valued at £300,000, the new tax means that stamp duty will increase almost three fold from £5,000 to £14,000.

This is not the only bad news for landlords as they also face substantially higher taxes on any profits made. The maximum threshold for tax relief will decrease from 45% and 40% to 20%. To put this in context, an investor who purchases a buy-to-let property for £200,000 with a mortgage of £150,000 will see their net annual profit wither from £2,160 to £960. These factors coupled with the strong possibility that interest rates may soon be rising means there is a distinct possibility that landlords may start making losses on investment properties.

However, there appears to be a silver lining for the savvy investors. When they do decide to sell their investment properties they are well within their rights to offset purchase costs against any capital gains tax, this can include stamp duty! So whilst they will get stung with an additional fee to start off with it appears that this money will be able to be claimed back at a later date.

David Cox of the Association of Residential Letting Agents has described the additional tax as 'catastrophic news for the private rental sector.' When the April deadline passes and demand slows down exponentially there will be a severe shortage of rental stock available to the private market. This will inevitably push up the price of what stock is still available meaning that prospective renters will face increased competition and increased rents.

One group who has welcomed the increased tax is the first time buyers who are struggling to get a foothold in the London property market. First time buyers can often be pipped to the post by experienced investors for a number of reasons. Vendors like the fact that investors have been through the purchasing process already and are aware of the differing protocols often leading to a speedy transaction. This coupled with the fact that investors will need a minimum deposit of 25% of the property purchase price often helps swing the property their way. The fact that investment properties are soon to be a lot less attractive means that young adults and families will be facing a lot less competition when they attempt to buy.