George Osborne confirmed plans in the Autumn Statement to hike up Stamp Duty by 3% for investors buying a holiday home or property to rent out.

What’s the latest?

Buy-to-let investors are set to pay thousands of pounds in extra tax when they buy a property under new Stamp Duty rates.

Chancellor George Osborne announced in the Autumn Statement that Stamp Duty will be 3% higher for people buying a holiday home or property to rent out than for those buying a home to live in fulltime.

While 3% may not sound much, it will mean the Stamp Duty bill on a buy-to-let property costing £250,000 will soar from £2,500 to a massive £10,000.

The new rates will come into force on April 1.

Why is it happening?

Osborne justified the surprise increase by saying some of the money would be used to help first-time buyers, with £60m of the cash raised earmarked for people in areas where holiday homes have pushed up house prices.

The new rates are expected to raise £625m in the first year, rising to £880m a year by 2010/2021.

The move may also be an attempt to cool the booming buy-to-let market, after the Bank of England recently flagged it up as a threat.

Looking for second properties.

Who does it affect?

The change is obviously bad news for would-be landlords who will either have to find thousands of pounds extra or give up on their ambitions of owning a buy-to-let property.

"While 3% may not sound much, it will mean the Stamp Duty bill on a buy-to-let property costing £250,000 will soar from £2,500 to a massive £10,000."

But the impact does not end there. Commentators have warned it is likely to lead to a shortage of rental homes, at a time when supply is already failing to meet demand.

The new rates may also distort the property market in the short-term as investors race to buy a property before the higher tax comes into force in April.

Some experts have also claimed if landlords, who currently account for 15% of property transactions, desert the market after April 1 it could even trigger house price falls in popular buy-to-let areas.

On a brighter note, the move could be good news for first-time buyers, as they are likely to face less competition for cheaper homes if landlords are no longer buying them.

Sounds interesting. What’s the background?

As always, the devil is in the detail. The new ‘landlord’ tax will apply to anyone purchasing “an additional residential property”, which includes a buy-to-let property, a second home and a holiday home.

People buying houseboats, caravans or mobile homes will be exempt from the new rate.

Landlords buying properties costing less than £40,000 will also not have to pay the tax, but homes on the market for that price are few and far between.

In what is likely to be seen as a final kick in the teeth to people who hoped to use property to save for their retirement, companies and funds that own more than 15 properties are also likely to be exempt from the new higher rates.

However, some good news is that landlords can offset purchase costs - including Stamp Duty - against any Capital Gains Tax liability when selling a buy-to-let property.

 Property price Stamp Duty now   Stamp Duty from April 1, 2016 Difference in tax
 £150,000  £500  £5,000  £4,500
 £250,000  £2,500  £10,000  £7,500
 £350,000  £7,500  £18,000  £10,500
 £450,000  £12,500  £26,000  £13,500

Top 3 takeaways

  • New Stamp Duty rates for buy-to-let investors will come into force from April 1, 2016.
  • The new rates are 3% higher than existing ones and will lead to the Stamp Duty bill on a £250,000 property soaring from £2,500 to £8,800.
  • The move could lead to a shortage of properties to rent if people are deterred from investing in the buy-to-let sector.

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