As the property market slows down, Bournemouth Landlords realise the true cost of the Stamp Duty changes

From the 1^st April 2016, Stamp Duty has increased for the purchase of investment properties and additional homes. As many of you will know, this change has increased the cost of Stamp Duty by 3% of the overall purchase price of the property affecting tens of thousands of buyers. It’s no surprise then that we saw huge increases in volume of transactions in the months leading up to the change as investors looked to complete their purchases before the tax changes came into effect. But what is the true cost of this tax change? Is it still worthwhile investing in Bournemouth property?

I have been speaking to a number of buy to let landlords over the last few weeks about this very subject. Yes, many landlords have been put off by the recent tax attacks on landlords, not just the increase on Stamp Duty. Having said that, when you look a bit closer at the figures and work out the true cost of the changes, you might be just a little surprised. 

Below is what the new Stamp Duty tax banding's look like;

Thresholds	Ex. SDLT rates	New ad. property SDLT rates
£0-£125,000	0%	3%
£125,001-£250,000	2%	5%
£250,001-£925,000	5%	8%
£925,001-£1,500,000	10%	13%
Over £1,500,000	12%	15%

Many would expect that these tax changes will cause a much larger effect on London and the South due to the higher overall property prices in these areas. And yes, you would be right, naturally you are looking at falling into the higher tax banding's. However typically speaking, investors in these areas would already have to save up bigger deposits and fees already, so the increase in Stamp Duty is fairly proportional when looking at the additional upfront costs.

Here is an example of the increased tax costs for a 2 bedroom property in Bournemouth which costs £255,000.

Thresholds	Ex. SDLT rates	New ad. property SDLT rates
£0-£125,000	£0	£3750
£125,001-£250,000	£2,500	£6250
£250,001-£925,000	£250	£400
Total SDLT Payable	£2,750	£10,400

On the face of it, the increase in Stamp Duty causes your tax bill to increase over 3.5 times the previous cost. This will certainly cause the smaller landlords a delay in purchasing as they would need to save up an additional £7,650 in the example above. 

However, let’s have a look at how that affects the overall yield of the investment;

Thresholds	Ex. SDLT rates	New ad. property SDLT rates
Purchase Price	£255,000	£255,000
SDLT	£2,750	£10,400
Professional Fee’s	£2,000	£2,000
Total Upfront Cost	£259,750	£267,400
Rental Income (£1,100pcm)	£13,200	£13,200
Yield%	5.08%	4.94%

The increases in Stamp Duty were yet another blow for landlords in the budget. However, property investment for Buy to Let is a long term plan, and as such you need to consider your investment over a full term. The additional upfront costs will certainly cause issues for many people looking to invest in property. But get past that hurdle and you will see very little impact on your overall returns - around 0.14% in the calculation above.

Thank you for reading, I hope you have found this article helpful. Please get in touch if you have any questions, comments or concerns. You can contact me by email luke.marchabks@belvoir.co.uk by phone 07979 123970 or let’s meet in person over a cup of coffee!

Regards

Luke


(Please note that the examples above are for illustration purposes only. There are a number of different factors involved in calculating a return so it's important that you do some research and where possible get some professional advice).