Last month, the UK property market was hit with news from Chancellor, George Osborne, that the current UK stamp duty thresholds were set to rise considerably in April 2016. The proposal will help to raise almost a billion pounds by 2021, for local communities who are currently being priced out of the market. (1)
To see the proposed Stamp Duty rise, click here.
Despite the initial worry and shock that came with the announcement, it is only a proposal and is not yet set in stone. In the meantime, we have uncovered a number of ways you can avoid paying extra SLDT ( Stamp Land Duty Tax) on your investments in 2016.
Legal Loopholes of UK Stamp Duty
With many things in life, comes loopholes. Ways of manoeuvring around restrictions and laws to benefit yourself and your family. We have uncovered a number of legal ways you can avoid paying the increased SLDT on your future investment opportunities.
Residential Lease Vs Commercial
One way of avoiding extra expenses when investing in property is by looking into the commercial market. Investing in a shop, restaurant or even a pub means that you might be able to bypass the rise in Stamp Duty.
You can invest in a commercial property up to £150,000 for zero Stamp Duty, as long as the annual rent is under £1,000. If the annual rent is over the £1,000 threshold, the tax is only 1%. Find out more about commercial properties and Stamp Duty here. (2)
Moreover, investing in a rental lease rather than a buy-to-let residential property, for a long period of time, say 50-100 years, is another way of expanding your property portfolio and still avoid paying any extra cost on your investment. According to gov.uk, Stamp Duty tax will not be paid on residential leases up to £125,000. (2)
Ask Your Partner or Spouse to Sign
The proposed increase in SDLT only applies to second homes and buy-to-let investments. If the property is considered a first home, you are not edgily to pay.
If you already own a home but want to invest in a small buy-to-let, you could invest using a partner or spouse’s name, rather than your own. This will only work if your partner/ spouse does not already have a property in their name. Although is it important to seek legal advice before proceeding down this route. (3)
Become a Live-in Landlord
There are still ways you can become a landlord without having to buy a second home or small buy-to-let.
If you own a property which is considered your first home, you can still rent out spare rooms to paying tenants to make an income, without it being classed as a second home/ buy-to-let. However, this is not for the faint-hearted. Living in close proximity to tenants can be an absolute nightmare, especially if they are not friends or family. ‘Don’t be tempted to take pity on down and outs, or people going through marital break-ups or other sob stories: the best lodgers are people who have their lives together, hard-working motivated people with a purpose in life,’ says Michael O’Flynn of FindaProperty.com, a website popular with landlords and lodgers alike. (4)
It might be worth consulting someone who is already a live-in landlord to see if this might be a viable option for you.
Stamp Duty is taxed on properties which are already built, possibly because the Government hopes to encourage more investors to build new homes, rather than snap up existing properties.
Building your own property means you can easily avoid paying extra SLDT on your dream home. If you build it from ground up, you could save yourself thousands of pounds in stamp duty. This is because you pay duty on the cost of the land but only on plots that cost more than £125,000. Moreover, the risk of building your own property can often pay off when it comes to completion. There are no guarantees but figures published by self-build specialists Buildstore suggest self it could be a money-spinner. It says self-built homes are worth on average around 25% to 30% more on completion than they cost to build. (6)
Make sure you fully understand the cost to complete and any unforeseen circumstances which might occur, as you might be paying more than you initially planned. Research and budgeting is the difference between success and failure in the property game.
15 Properties and Counting
If you are lucky enough to be an experienced investor and have a portfolio of properties, making sure you have at least 15 investments before April 16, will mean that you are excluded from any rise in Stamp Duty Tax.
According to a recent Telegraph article, researchers said it was too early to identify effects of the stamp duty changes on the market, but since the government was consulting on exempting corporate structures with more than 15 properties, the trend towards incorporation was expected to accelerate next year. (7)
The rise in UK Stamp Duty was proposed as part of the Autumn budget, however that doesn’t mean it will happen. The property is a necessity, we all need a roof over our heads, and so it will always be in demand. It is a strong investment decision, but it is always worth keeping an eye on the market to see when is the best time to invest for you.