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New 3% stamp duty on property trading

New 3% stamp duty on property trading

Hello

I understand that the new 3% additional stamp duty applies to buy to let and second residential properties or even first property if purchased through a company. However if the company is a property trading company with buying a property, renovating and selling say after 6 months, is this scenario caught by the 3% additional stamp duty.

many thanks

Juzer

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26th Feb 2016 17:28

At a tax lecture I went to recently, they said this is still not clear. It is one of the points that came out after the consultation document.

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By awoodj
29th Feb 2016 12:38

So it looks like it does apply

Final legislation still to be released but from the consultation it would appear that it will apply. Personally I think this is a bad idea and undermines the supposed aims of the legislation in that many first time buyers will never purchase a property in need of significant work so when a developer purchases a property to renovate and sell on to a first time buyer, the 3% is built into their costs and therefore added onto the price charged to the first time buyer.

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29th Feb 2016 13:08

I don't believe that's the way it works

awoodj wrote:

 the 3% is built into their costs and therefore added onto the price charged to the first time buyer.

I wonder how many people think that that is correct?

The "price charged to the first time buyer" is surely what the market will bear. In the fullness of time, the 3% charge will reduce the amount the seller of "the property in need of significant work" will get for it.

 

 

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By awoodj
29th Feb 2016 13:18

Depends

It's hard to say for sure how it will play out as with much of economics it's more complex due to the myriad of interactions and human motivations involved in the process.

I do know many developers doing this are saying, "well I'll just decrease the amount I'll pay by 3%" to which one can then question well if that's the case why are you paying 3% too much today?

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29th Feb 2016 13:53

a more likely scenario

awoodj wrote:
 I do know many developers doing this are saying, "well I'll just decrease the amount I'll pay by 3%" 

Yes, that's a much more likely a scenario for how a developer will deal with it.

awoodj wrote:
....to which one can then question well if that's the case why are you paying 3% too much today?

The answer to your questioning of the approach is that today they will be in competition with others who are also not paying an extra 3%. Next year, all the developers will have the same extra costs so all things being equal it will come off of the developer's purchase price.

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By awoodj
01st Mar 2016 13:26

Economic theories don't always play out

But if the seller could/would just take the 3% hit then, they also could today, all developers would be happy to pay 3% less right now if they could.

These changes will have a number of effects on the market and I doubt they will flow through as simply as you predict. Economic effects are played out in a complex system with human behaviours adding complexities and unpredictability to the equation.

For example on one hand George Osbourne says rents will not increase due to the introduction of clause 24 reduction in interest offset allowance. Back in the real world I know many landlords are already increasing rents to counter this and writing letters to tenants along with the increase notice explaining the reasons are directly relating to the tax changes including example calculations.

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