The Race to Buy Investment Property Before April

2016

Despite the time of year, there is no apparent let-up in demand from property investors to complete transactions before April when the stamp duty rises by 3% for second homes and buy-to-let properties. Property investors would do well to read the attached article. Anyone who is engaged in, or interested in property investments should take note of the advice contained within and the following implications.

1. The stamp duty changes are not believed to be excessive enough to stall the buy-to-let market, but may result in a dip in activity. 2. The stamp duty rise looks more like a tax-grab, or alternatively as an attempt to disrupt the buying of second homes, or buy-to-lets among smaller investors. 3. Completing a purchase of a second home or buy-to-let investment before April will give you a Stamp Duty bill of around £3,750 on a property costing £275,000 (this will still be the rate for buyers purchasing their main residence). From 1st April 2016, the same property will cost someone buying a second home or buy-to-let £12,000 in Stamp Duty. It is worth noting that prior to the 4th December 2014, a property of the same value would have cost £8,250 in stamp duty for both residential and investment purchases.

Minimum property purchase price

Maximum property purchase price

Stamp Duty rate (only applies only to that part of the property price that falls within each band)

Rate on second homes and Buy-to-let

(from 1st April 2016)

£0 £125,000 0% 3%

£125,001 £250,000 2% 5%

£250,001 £925,000 5% 8%

£925,001 £1.5 million 10% 13%

Over £1.5 million 12% 15%

(Source: HMRC)

4. There will be a huge rush to complete purchases before the April deadline which may see property prices rising even more quickly in the short term as investors hurry to acquire new properties before the new rate of stamp duty takes effect. We have already seen clear evidence of this through higher than average levels of investor activity over the holiday period. 5. There will be additional pressure on all parties involved (including the various professionals, lenders, solicitors, agents, surveyors, etc.) to provide quick turnarounds and facilitate a quick transaction. 6. The stamp duty can be claimed back against Capital Gains Tax when the asset is sold. 7. Sellers can expect quick completions before April driven by the buyer's motivation to save the additional 3%. 8. The market should see a reduction in the level of transactions from smaller investors after April. This will be partly due to the rush to complete purchases before April and then a short-term lull before investors adjust to the new rates. 9. The pressure on buyers to make a purchase may see some skip some of the essential steps of due diligence or rush their calculations. These mistakes will be especially costly if the properties require work to enable them to produce the anticipated return on investment. This may see a volume of properties returned to the market. 10. The stamp duty rise is just one of the current set of factors that is driving the prices of property, especially in and around London. It is useful to note that there are other factors that are driving prices up as well as factors that are putting downward pressure on prices. It is important to understand these pressures and why they exist before making a decision to invest.

Seek professional advice from experts like Anderson Wilde & Harris to

understand movements in the residential and commercial property

markets.

We regularly provide talks to professionals involved in various roles in

the property market including banks, specialist lenders, solicitors,

accountants, architects, investors and developers.

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Reference Sources:

A further clarification can be found in this article from The FT