Property Tax: Imminent SDLT and buy-to-let tax changes

Significant tax changes are on the way for anyone buying a second home or a buy-to-let property in England & Wales. The Scottish and Northern Irish Governments have also unanimously backed the changes, which will come into effect from 1 April 2016.

Robert Jamieson TEP explained the new changes in a STEP seminar for tax planning for businesses held in London on 22 February.

Under the current rules, you are entitled to claim all of the mortgage interest that you pay against the income of your buy-to-let property, and then only pay tax on the remainder, whether it is the basic rate of 20 per cent or the higher rates of 40 per cent and 45 per cent. Other valid expenses can also be deducted before the tax is payable.

However, from next year the calculation of the tax relief is going to be greatly reduced to a flat rate of 20 per cent on the whole income of the property. This will be slowly phased in from 2017 and by 2021 the rules will be fully enforceable. Landlords who pay the basic rate of 20 per cent will see no change, whereas the higher rate tax payers of 40 per cent or 45 per cent will lose 50 per cent or more on their tax relief. These rules do not apply to owners of furnished holiday accommodation or to landlords of rented commercial property (S24 F(No2)A 2015).

From 1 April 2016, higher rates of Stamp Duty Land Tax (SDLT) are also being introduced resulting in an additional 3 per cent on top of the fixed 2014 rates which will be charged on the purchase of both second homes and buy-to-let properties. The Chancellor George Osborne quoted ‘People buying a home to let should not be squeezing out families who can’t afford a home to buy. So I am introducing new rates of stamp duty that will be 3 per cent higher on the purchase of additional properties like buy to lets and second homes.’

This increase significantly inflates the stamp duty tax on a GBP275,000 buy-to-let purchase from GBP3,750 to GBP12,000.

Read the full story on the STEP website at