The surprise announcement to increase SDLT surcharge on second homes and buy-to-let’s from 3% to 5% will impact property transactions and prices, especially in areas popular with second home/holiday home buyers.
Some 19% top rate of SDLT for an overseas buyer who owns homes elsewhere in the world – is high.
As with previous rises in SDLT we expect the ultimate price for the rise to be paid for by the seller.
History has shown that when SDLT goes up, transactions slow (it takes time for reality to sink in) and then prices fall in line with the rise, and sometimes overshoot it.
MEXICAN STANDOFF
We expect to see more “Mexican standoffs” as buyers and sellers battle it out. At Black Brick, we are already embarking on some tough renegotiations for clients under offer and not yet exchanged to take into account the additional 2%.
On the plus side, CGT on the sale of second homes remains unchanged. So anyone sitting on a gain should still be as incentivized to sell as they were pre-budget. Sellers are also able to deduct their costs (stamp duty, legal, and buying/selling agent costs) from their final CGT bill on exit.
RULE OF SIX
And interestingly there’s been no change at all to “the rule of six”. Investors buying six or more properties or a property that is mixed-use will pay significantly lower stamp duty rates of just 5%.
I expect to see more interest from investors taking advantage of the current buyers’ market and benefiting from much lower entry costs. At Black Brick, we have an enviable track record of securing bulk deals for investor clients.
The main benefits are lower stamp duty costs – 5% instead of 19% and more control on running costs – buying a freehold hold building of six or more flats puts the investor in control rather than paying high levels of service charge.
Other benefits include flexibility on the exit strategy – owners of freeholds can choose to sell the entire building or break it up and sell off individual flats on leases and the ability to negotiate harder on entry – we’ve negotiated as much as 20% from asking prices on bulk deals from developers.
And with rents rising and yields improving, this sector is looking more attractive.
NON DOMS
As for Non Doms – bringing in a Non Dom’s entire estate into the scope of UK IHT has already caused some to leave and more may follow but there are solutions to IHT that all clients should be aware of before packing up.
Our recent podcast with leading HNW mortgage broker Sarah Kelly and life insurance specialist Rob May from the Private Office at SPF is essential listening. We expect more clients to look at taking out life insurance policies to mitigate their IHT exposure going forwards.
Camilla Dell is a property expert and founder of buying agency Black Brick
