SDLT holiday, time to invest in property?

Written by yasiradnan94
20 November 2020

One of the key measures announced by the Chancellor in July was the reduction in Stamp Duty Land Tax (SDLT) on residential property. The purpose of the reduction is to boost the housing market and support the construction industry.

What are the current SDLT rates?

Property or lease premium or transfer valueSDLT rate 08/07/2020- 31/03/2021
Up to £500,000Zero
The next £425,000 (the portion from £500,001 to £925,000)5%
The next £575,000 (the portion from £925,001 to £1.5 million)10%
The remaining amount (the portion above £1.5 million)12%

The result of this holiday means those buying a property in England and Northern Ireland won’t pay any stamp duty land tax at all on purchases up to the £500,000 threshold. For properties worth more than £500,000 the normal rates apply, but savings are made on the first half a million.

The large savings have resulted in great interest among first time buyers and investors, which has boosted the housing market demand.

Does this change mean that this is the right time to buy an investment property?

Many people may be thinking about starting or growing their property portfolio, especially when interest rates on savings are at an all-time low. If they have sufficient funds, this may be the right time to invest in property to generate an additional source of income. The SDLT holiday means that they will only have to pay the 3% surcharge when buying another buy-to-let property up to a value of £500,000.

Those that are considering a first venture into becoming a landlord, there are many things to consider before doing so and some of the questions you need to ask yourself are as follows;

·        Do you want to keep the property until retirement or want to pass it on to your next generations?

·        Do you know which structure to use for a purchase, sole name, company structure, partnership?

·        Majority of the councils have withdrawn empty property council tax relief, which means that you have to pay council tax from your own pocket for your empty property if the tenant has left.

·        Regular repairs, landlord gas and electricity safety checks, insurance means there is less true margin left for you.

·        From 6 April 2020 – mortgage interest is fully disallowed and replaced with a maximum of a 20% tax credit. Residential buy-to-let landlords are no longer able to deduct their finance costs from their property income to arrive at their taxable property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs. So, if you are already a higher rate taxpayer, you may need to think about an alternative structure ie buying a property in the company or buying in the name of your spouse or children.

·        Are you going to manage the property yourself or engage an estate agent to handle all the paperwork involved?

·        Do you have an alternative source of income to fund the above costs should your property become vacant?

·        If you fail to perform your landlords’ responsibilities, there are hefty fines and convictions based on your careless behaviour towards the maintenance of the property.

The SDLT reduced rate provisions apply for a limited time up to 31 March 2021 and for those considering a property investment, we recommend taking a wholistic approach to becoming a landlord and consider the above-mentioned points.

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