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Impact Of New UK Landlord SDLT Calculated

by Robert Lee,, London

15 December 2015

The impact of the introduction of a new three percent UK stamp duty on buy-to-let properties is equivalent to 11 months' income for the average mortgaged landlord, according to new research by Countrywide Residential Lettings.

The rate will apply to buy-to-lets and second homes that cost more than GBP40,000 (USD60,604) to purchase. It will apply from April 2016.

Countrywide said that if the higher tax burden is not factored into the purchase price of a property, it would mean a reduction in gross yield of 0.2 percent. This is equivalent to 11 months' income for the average landlord, taking into account borrowing costs (based on the average loan-to-value of 68 percent), Countrywide explained.

Countrywide added that landlords in the south west and north east of England will see the highest cost relative to rental income, where the extra tax burden would be equivalent to 14 or 12 months of income, respectively.

According to Countrywide, the majority of landlord purchases take place in London, the south, and east of England. Landlords in these areas would see the biggest cash increase in stamp duty, of GBP6,000 on average, but high expectations of future house price growth could mitigate the impact. If house prices grew at the same rate as over the last five years, within 12 months this growth would offset the cost of the additional stamp duty, Countrywide calculated.

Johnny Morris, Research Director at Countrywide, said: "The stamp duty increase will impact landlords' purchasing power. Many entering the market will be faced with a choice between making a lower offer when buying or having to cover the additional costs themselves, impacting yields. Most landlords view property as a long term investment, on average holding a property for 17 years, and larger investors will be exempt from the higher stamp duty rate. This means over the long term the private rented sector will continue to grow, but there's likely to be a few lumps and bumps along the way as landlords get to grips with and adapt to the changing environment."

"It's unlikely the change to stamp duty will see an immediate impact on rents. Landlords are rarely able to pass on increasing costs to tenants, as rental prices are set by market forces. But if less landlords choose to invest in the sector in the short term, a fall in homes available to rent could put pressure on prices."

TAGS: tax | investment | property tax | real-estate | United Kingdom | tax thresholds | tax rates | stamp duty | tax reform | trade association | trade

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