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How Stamp Duty Reductions Impact Landlords

By August 6, 2020February 16th, 2021No Comments

With investors able to save as much as £15,000 with the introduction of new stamp duty measures, it is unsurprising that landlords may be looking to take advantage of the government’s property initiative. So how can landlords benefit from the government’s scheme?



What’s changed for landlords?


As the uncertainty resulting from COVID-19 has hit almost every sector in the UK, it is difficult to ascertain with full certainty whether a lower tax bill will entice investors that have previously been disincentivized by the high costs of becoming a landlord. However, there are significant changes for landlords that should be considered by those looking to invest in a buy-to-let endeavor. 

Previously, an investor buying a £500,000 home would need to pay 3% on the first £125,000 of the property, 5% on the next £125,000, and 8% on the remaining £250,000. The overall stamp duty bill on this hypothetical property would be £30,000. However, with government cuts to stamp duty, they will now only need to pay 3% of the entire £500,000 value, essentially halving the overall stamp duty owed on the property in question. 

With savings ranging from £1,500 to £15,000 on properties that lie within the £200,000 to £500,000 mark, the savings for buy-to-let investors and new landlords is set to be quite substantial.

Buy-to-let broker Mortgages for Business have recommended for investors to buy quickly before second steppers are able to do the same. With the stamp duty holiday set to benefit both investors and the property market at large, it is of little surprise that this degree of haste has been encouraged. 

For landlords or property investors that have previously been put off by mortgage qualification difficulties, these changes to stamp duty put individuals in a better position due to the potential to wield larger deposits. With landlords well-placed to take advantage of the stamp duty holiday in a way that owner-occupiers cannot, this advantage cannot be understated. 

As a final note to landlords, it is well worth considering that this distinct advantage will not last forever. Rather than biding their time and then scrambling for a good deal, property investors should look to expand their portfolios immediately whilst the stamp duty holiday is at its most profitable. With the threshold lifted until March 2021, time is of the essence for those looking to take full advantage of this scheme.  

With savvy landlords expected to exploit the low-interest-rate environment and stamp duty holiday to the full, the projected benefits for landlords on account of this incentive are certainly large enough to provoke wider changes to the property market.


How will the changes affect the property market?


Higher Prices

There is the possibility that stamp duty cuts could bring higher prices to the market. Though the stamp duty cuts are positive in theory, those looking to buy a home should fully research the costs and benefits of the scheme prior to making a final decision. It is entirely possible that the saving from the stamp duty cut may instead be squandered on increased competition for the homes available for sale, driving up general property prices in most areas. 

Buy-to-let boost

However, though the above should be considered, it is also possible that the stamp duty holiday will result in a buy-to-let boost. With online mortgage brokers expecting a significant movement in the buy-to-let market on account of the stamp duty holiday, only time will tell how many landlords will be enticed back because of cuts. 

In addition to this, there may also be an increase in first-time buyers considering buy-to-let properties. As the stamp duty holiday offers a unique incentive for those previously unable to purchase property, this government incentive may significantly alter who chooses to invest in the property market.

Changes to the rental market

With the rental market unlikely to be immune to the issues affecting the wider economy, it is crucial that prospective landlords select the right property. With unemployment set to rise and tenancy voids entirely possible in the coming months, it is important for buy-to-let investors to fully understand the pros and cons of this incentive. 

However, despite these considerations, now is arguably the perfect time to invest for those that were always intending to add to their property portfolio, as the significant savings available may just clinch the deal for some. 

Changes to limited companies 

As a final note on changes to the property market, some experienced investors are seizing the stamp duty cut to transfer properties that they own into a limited company. As there are some restrictions for second homes and buy-to-lets under previous policy, those who hold properties in a limited company are still able to benefit from the tax break. It is therefore possible that the property market may see more of these changes in the coming months. Though there will be capital gains taxes and stamp duty to consider with regards to these properties, shifts in the general structure of the property market will likely apply in these cases as these scenarios become more prevalent.


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