British expats looking to invest in UK property face higher real estate tax

by Ray Clancy on November 30, 2015

British expats often like to keep a home while they are abroad and many have also been involved in the rise of buy to let buying in recent years.

But now those who want to buy more properties as an investment to let out face a new tax burden. From April 2016 buy to let purchases in the UK will attract an additional 3% in Stamp Duty, the tax paid to the government when buying a property.

England PropertiesThe extra tax will apply to all ranges of residential property and will also affect second home owners. It will hit individual investors, but large corporate investors will be exempt.

Buy to let has become increasingly popular in the UK as historic low interest rates mean that borrowing for property is very cost effective and there are also more buy to let mortgage products available than ever before.

According to various real estate experts in the UK, there is likely to be a rush from buy to let buyers to finalise purchases before the new tax comes into being next April and with supply already low in the UK market this could push up prices, especially in the short term.

David Gibbs, partner at Alliotts Accountants, pointed out that not only will buy to let investors be hit with additional stamp duty on purchase, but also a requirement to pay capital gains tax within 30 days of a sale.

“Investors will face a hike of 3% on stamp duty for all buy to let purchases from 01 April 2016. That means stamp duty rates will run from 5% for property over £125,000 up to 15% on property over £1.5 million. In addition, when a property is sold from April 2019 the capital gains tax will be due just 30 days after completion,” said Gibbs.

Jo Bateson, tax partner at KPMG in the UK, explained that more detail is awaited to fully evaluate the tax implications.

“These measures might dampen demand for the kind of properties that are marketed as buy to let investments and investors may decide to re-evaluate the attractiveness of the residential market ahead of this announcement,” said Bateson. “There are a number of important issues still to be addressed such as what is the position of a purchaser who is at first unsure how it might be used. We are waiting for some important outstanding details such as how reliefs and allowances can be applied to a tax payment which is outside of self-assessment which I am sure will be part of the consultation process.”

Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA), believes that while the stamp duty changes will impose higher initial costs for investors, most mortgage deals should be able to absorb a slightly higher loan size, if the borrower requires, within lenders’ existing guidelines.

“Data suggests that landlords invest for the long term, so this change is unlikely to materially reduce activity on its own,” said Williams.

Skipton International, which provides mortgage for expats looking to purchase buy to let properties in the UK, does not think the new levy will put off investors.

“While this is clearly not a welcome decision, most expat investors view UK property as a long term investment and hence a 3% rise over the lifetime of a property should be seen in that context,” said Jim Coupe, managing director of Channel Islands based Skipton International. “Some UK property experts are suggesting that this increase could result in higher future rents as landlords pass on increased stamp duty costs to tenants. There is also the possibility rents may rise if the number of investors in UK property drops.

“Despite the move, property in the UK is regarded by many as a very attractive, secure investment and we do not foresee a rise in stamp duty deterring the majority of investors.”

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