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What does the new buy-to-let stamp duty mean?

Green Dragon House Under Construction

Plans to increase stamp duty costs for buy-to-let landlords and second home buyers could fuel price increases and rents, according to experts.

The changes, which will come into force in April 2016, will mean a 3% rise in stamp duty for buy-to-let investors. For example, the tax bill on a buy-to-let property costing £250,000, will jump to 10,000 instead of 2,500. The same increased stamp duty rate applies to buying other second properties, such as holiday homes, in which the owners do not intend to live full-time. Initially, it seems daunting. However, when you take into consideration the potential profit to be made thanks to capital gain, it would be foolish to forget about investing in property. In addition, these changes will not apply to “corporates or funds making significant investments in residential property, given the role of this investment in supporting the government’s housing agenda”.

Over the last ten years, property prices in London have increased by 55% over a ten year period. Even in individual boroughs, values have shot up with Croydon properties experiencing a 35% increase in value over five years and Brixon properties now being worth 46% more than they were in 2010.

Research suggests that the market will get more active following Osborne’s announcement in the latest budget. Many people are exchanging on properties sooner rather than later to avoid these changes. The alterations will net the exchequer £625 million over 2016 and a rush of purchases ahead of its introduction is even expected to bring in an extra £30 million before April.

The government have made these changes in a bid to achieve sustained investment and fix the UK’s current housing crisis. As it stands, research predicts that by 2025, over half of 20 to 39-year-olds in the UK will be renting. Therefore, this policy is designed to target buyers of second homes in communities and parts of the country where the housing need is most chronic to help increase supply to first time buyers.

On one hand, the changes could discourage people from investing in buy-to-let due to increasing costs involved. However, for those willing to purchase properties now, the risk will pay off. Less supply on the market means rents will increase substantially, increasing potential yields for investors and reducing the risk of empty properties.

Ultimately, property is still a brilliant, safe and stable investment. The new changes simply mean that the investment will just take slightly longer to start paying back, but it is not enough to merit the complete disregard of several investment opportunities. Pick your purchases well, and you can still make a lot of money!

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