The government's joint Spending Review and Autumn Statement published 25 Nov 2015 certainly caught the attention of anyone involved in the housing market. There are sweeping changes to Stamp Duty, helping first time buyers in London and the collection of Capital Gains Tax. Here is clarification on the new rules and the potential impact.
Stamp duty for buy-to-let/second home purchases
This is the one change that has caused the biggest stir. From 1 April 2016 there will be higher rates of stamp duty applied to the purchase of buy to let properties and second homes. The higher rates will be 3% above the current stamp duty rates. As this can be interpreted in different ways (increasing all of the bandings as shown below or just increasing the highest applicable banding), it is difficult to know the exact additional cost. The figures below are the worst-case scenario, where the 3% increase is applied to all the current stamp duty bandings:
This would result in the following changes:
These calculations will be subject to change, if the rules are implemented differently.
London Help to Buy
Buyers with a 5% deposit will be able to apply for a loan of up to 40% of the value of a new build property, interest free for the first 5 years. This means that the overall mortgage will be equal to 55% of the value of the ne build property. In practice this will mean:
Purchase price: £350,000
5% personal deposit: £17,500
40% equity loan: £140,000
Mortgage: £192,500
Based on current loan to income multiples/affordability calculations, the minimum income required to achieve this mortgage would be approximately
£40,000.
Now that the government has announced this new scheme, mortgage lenders will have to update their products and systems, so we should start seeing new mortgage products for this type of scheme in the near future, as no launch date for this new scheme has been set.
Collection of Stamp Duty
The payment window for stamp duty will be reduced from 30 days to 14 days. This will be implemented in the 2017/18 tax year.
Collection of Capital Gains
From April 2019 capital gains tax will have to be paid within 30 days of the disposal of residential property. Under the current system it is paid between 10 and 22 months after the disposal is made.
Help to Buy: Equity Loan Scheme
This is now being extended to 2021.
Analysis from
Capricorn Financial Consultancy.
This would result in the following changes:
These calculations will be subject to change, if the rules are implemented differently.
London Help to Buy
Buyers with a 5% deposit will be able to apply for a loan of up to 40% of the value of a new build property, interest free for the first 5 years. This means that the overall mortgage will be equal to 55% of the value of the ne build property. In practice this will mean:
Purchase price: £350,000
5% personal deposit: £17,500
40% equity loan: £140,000
Mortgage: £192,500
Based on current loan to income multiples/affordability calculations, the minimum income required to achieve this mortgage would be approximately £40,000.
Now that the government has announced this new scheme, mortgage lenders will have to update their products and systems, so we should start seeing new mortgage products for this type of scheme in the near future, as no launch date for this new scheme has been set.
Collection of Stamp Duty
The payment window for stamp duty will be reduced from 30 days to 14 days. This will be implemented in the 2017/18 tax year.
Collection of Capital Gains
From April 2019 capital gains tax will have to be paid within 30 days of the disposal of residential property. Under the current system it is paid between 10 and 22 months after the disposal is made.
Help to Buy: Equity Loan Scheme
This is now being extended to 2021.
Analysis from Capricorn Financial Consultancy.
