Property investors, including buy-to-let landlords and small-scale developers, are still unaware of the additional Stamp Duty that they are liable to pay on residential property purchases, warns a leading solicitor.
Jasper Dawson, of North West law firm Kirwans, is seeing an increasing number of cases whereby investors are finding out at the last minute that their returns could be far less than expected due to the additional Stamp Duty.
Those particularly affected are those buying properties with a view to changing their use from residential to commercial, buy-to-let landlords and small-scale developers, whose already modest returns are massively affected by the 3% surcharge.
The additional Stamp Duty rate was introduced on 1st April this year to raise funds for communities where the impact of second homes is particularly acute, and to help towards doubling the Government’s affordable housing budget.
The charge increases all residential Stamp Duty bands by 3%. For example, if the previous rate was 2% for the £125,000-£250,000 band, any additional properties will now be subject to a 5% Stamp Duty bill.
Dawson says: “Since the 3% Stamp Duty was introduced in April, we have dealt with a number of clients who have discovered that the residential property they were planning to buy, perhaps to turn into offices or to regenerate and re-sell, is subject to this tax.
“Often, these purchasers have been unaware right up until the last minute that this tax affects them, as many assume it only affects those buying second homes for personal use. The range of properties that this charge covers is vast; even off-plan purchases can fall into this bracket.”
There are some circumstances in which the charge does not apply, explains Dawson, such as purchases of non-residential or mixed use properties, or transactions costing less than £40,000.
However, Dawson warns that most buyers are subject to the additional Stamp Duty cost, but many don’t realise until they’re about to exchange contracts. At this point, they are forced to seek urgent legal advice to find out if there is a way that they can legally avoid paying the tax.
He adds: “Fortunately, there are often ways that we can help people to continue with their purchase and still make a healthy return, but the earlier in the process that people are made aware of the potential charge, the better. Anyone who fears that they may be subject to this tax should seek legal advice as soon as possible.”
Landlords, remember to keep up to date with your financial and tax obligations. If you are purchasing a new investment, it is vital that you understand all of the costs associated with buying a rental property.
In addition, you must remember to protect your purchase with the widest Landlord Insurance available as standard. Just Landlords provides award-winning cover at competitive prices, so that you can rest assured your property is in safe hands.