After this week’s announcement in the Chancellor’s Autumn Spending Review that investors will have to pay an additional 3% in stamp duty on B2L properties and second homes (from £40,000 upwards) from April 2016 (source: BBC News), the immediate reaction is that this may signal the beginning of the end for UK B2L. But is it too soon to be writing the B2L obituary?

1. Autumn
Spending
Review
stamp
duty
change
-­‐
What
does
it
mean
for
the
UK
B2L
market?
(November
2015)
After
this
week’s
announcement
in
the
Chancellor’s
Autumn
Spending
Review
that
investors
will
have
to
pay
an
additional
3%
in
stamp
duty
on
B2L
properties
and
second
homes
(from
£40,000
upwards)
from
April
2016
(BBC
News)
the
immediate
reaction
is
that
this
may
signal
the
beginning
of
the
end
for
UK
B2L.
But
is
it
too
soon
to
be
writing
the
B2L
obituary?
What
has
changed?
From
April
2016
stamp
duty
rates
will
be
3%
higher
for
B2L
investors
and
individuals
buying
second
homes
on
property
values
at
£40,000
upwards.
This
means
the
new
stamp
duty
rates
will
be:
Property
Value
Owner
Occupiers
B2L/Second
homes
£0
-­‐
£125,000*
0%
3%
£125,000
-­‐
£250,000
2%
5%
£250,000
-­‐
£925,000
5%
8%
£925,000
-­‐
£1,500,000
10%
13%
£1,500,000+
12%
15%
*
Transactions
under
£40,000
do
not
require
a
tax
return
to
be
filed
with
HMRC
and
are
not
subject
to
the
higher
rates.
Example:
A
B2L
investors
who
purchases
a
property
at
£500,000
will
pay
£28,800
in
stamp
duty
after
April
2016,
compared
to
£15,000
which
would
have
been
paid
before
April
2016
and
will
be
continue
to
be
paid
by
owner
occupiers
after
April
2016,
which
is
calculated
as:
£125,000
-­‐
£40,000
x
3%
=
£2,550
£250,000
-­‐
£125,000
x
5%
=
£6,250
£500,000
-­‐
£250,000
x
8%
=
£20,000
Total
=
£28,800
This
is
the
second
change
to
stamp
duty
tax
by
this
government.
Prior
to
December
2014
stamp
duty
was
charged
as
a
fixed
rate
on
the
total
value
of
the
property
at
the
following
rates:
Property
Value
Stamp
duty
£0
-­‐
£124,999
0%
£125,000
-­‐
£249,999
1%
£250,000
-­‐
£499,999
3%
£500,000
-­‐
£999,999
4%
£1,000,000
+
£1,999,999
5%
£2,000,000+
7%
What
does
this
mean
for
B2L
investors
in
numbers?

2. The
graph
below
shows
the
cost
of
stamp
duty
for
B2L
investors
on
property
values
up
to
£1.5m
today,
from
April
2016
onwards
and
before
December
2014
(when
the
last
changes
to
stamp
duty
were
implemented),
which
highlights
a
few
key
points.
1. Stamp
duty
will
be
payable
on
properties
purchased
below
£125,000
for
the
first
time
since
March
2006
when
the
threshold
was
raised
from
£60,000
to
£125,000.
2. The
impact
of
the
new
levy
increases
relative
to
the
value
of
the
property
(comparing
the
position
today
to
post
April
2016).
For
example,
at
£125,000
stamp
duty
payable
increases
by
£2,550
(from
£0
to
£2,550),
which
represents
2.0%
of
the
property
value.
This
steadily
increases
as
the
property
price
increases.
So
at
£1.5m
stamp
duty
payable
increases
by
£43,800
(from
£93,750
to
£137,550),
which
represents
2.9%
of
the
property
value.
3. Stamp
duty
payable
from
April
2016
will
be
higher
at
all
prices
than
it
would
have
been
before
December
2014
(with
the
exception
of
properties
below
£40,000).
4. But,
the
increase
in
stamp
duty
is
lowest
when
compared
to
the
old,
pre
December
2014
thresholds.
For
example
at
a
property
value
of
£250,000,
stamp
duty
from
April
2016
(£8,800)
is
only
£1,300
higher
than
the
amount
payable
before
December
2014
(£7,500),
which
represents
0.5%
of
the
property
value.
-­‐
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
25,000
75,000
125,000
175,000
225,000
275,000
325,000
375,000
425,000
475,000
525,000
575,000
625,000
675,000
725,000
775,000
825,000
875,000
925,000
975,000
1,025,000
1,075,000
1,125,000
1,175,000
1,225,000
1,275,000
1,325,000
1,375,000
1,425,000
1,475,000
Stamp
duty
(£)
Property
Value
(£)
Stamp
duty
comparison
Pre
Dec
2014
stamp
duty Dec
2014
-­‐ April
2016
stamp
duty April
2016
stamp
duty

3. 5. Whereas,
at
a
property
value
of
£1.5m,
the
increase
in
stamp
duty,
compared
to
before
December
2014,
represents
4.2%
of
the
value
of
the
property.
Which
equates
to
£62,550
(£75,000
before
December
2014
and
£137,550
after
April
2016).
This
increases
further
to
5.6%
at
just
under
£2.0m.
What
does
this
mean
for
B2L
investors
in
practise?
Demand
The
Institute
for
Fiscal
Studies
has
predicted
a
“rush”
in
sales
driven
by
B2L
investors
seeking
to
complete
purchases
before
stamp
duty
rises
in
April
(Source:
Telegraph).
However,
many
are
predicting
a
reduction
in
sales
in
the
longer
term.
The
Office
for
Budget
Responsibility
has
predicted
that
the
stamp
duty
changes
will
lead
to
reduction
in
property
sales
of
3%
in
2016
and
2%
each
year
from
2017
to
2020.
Based
on
the
analysis
above,
it
follows
that
properties
in
the
£1m+
price
range
may
see
a
disproportionate
fall
in
sales.
Properties
at
this
level
will
see
the
highest
relative
change
in
stamp
duty
as
a
percentage
of
the
property
value
and
this
follows
the
previous
increase
in
stamp
duty
in
2014,
which
is
seen
as
the
most
significant
reason
behind
the
slow
down
in
the
property
market
at
that
level.
Given
the
highest
concentration
of
£1m+
properties
are
located
in
London
and
the
South
East,
it
also
follows
that
these
areas
may
see
the
highest
fall
in
sales.
These
areas
have
already
been
significantly
impacted
by
increases
in
stamp
duty,
the
changes
announced
earlier
in
the
year
that
prevents
landlords
deducting
mortgage
interest
from
rental
profits
at
the
higher
rate
of
tax
and
a
general
fall
in
rental
yields
as
rents
have
failed
to
keep
pace
with
property
price
inflation.
This
news
also
follows
recent
reports
from
both
UBS
(Source:
Guardian)
and
Deutsche
Bank
(Source:
City
AM)
that
warned
of
a
future
fall
in
property
prices
in
the
capital.
The
same
analysis
above
also
suggests
that
the
reverse
is
true
at
the
lower
end
of
the
market
where
the
impact
of
the
change
in
stamp
duty
is
lower
relative
to
the
property
value
and
particularly
when
compared
to
the
cost
of
stamp
duty
before
December
2014.
As
a
result,
properties
at
this
end
of
the
market,
in
highly
populated
areas
away
from
the
South
East,
where
rental
yields
are
typically
higher,
may
see
a
lower
reduction
in
sales
as
a
result
of
the
stamp
duty
change.
Prices
Prior
to
this
week’s
announcement
Savills
latest
market
report
predicted
that
UK
house
prices
would
rise
by
an
average
of
5%
in
2016
and
then
a
more
modest
2.5%
to
3%
a
year
to
2020
with
the
lower
growth
attributed
to
the
impact
of
tighter
mortgage
criteria
and
higher
interest
rates
(Source:
Savills).
However,
it
is
unclear
how
these
forecasts
would
be
affected
by
the
changes.
It
may
be
reasonable
to
assume
that
irrespective
of
demand
that
the
market
will
see
a
price
correction,
(similar
to
the
prime
London
property
market
reaction)
as
investors
price
in
the
added
cost
of
stamp
duty,
either
to
maintain
target
returns
or
as
a
result
of
affordability.

4.
Rental
yields
Assuming
some
private
landlords
are
pushed
out
of
the
market
by
owner
occupiers
(potentially
armed
with
a
40%
interest
free
loan
from
Uncle
George).
This
will
have
the
affect
of
reducing
the
supply
of
rental
properties,
which
in
turn
may
drive
up
rental
prices
and
yields
for
those
landlords
that
do
remain.
Tax
It
should
be
noted
when
considering
the
impact
of
the
new
levy
that
landlords
can
offset
the
cost
of
stamp
duty
against
capital
gains
tax
due
on
disposal
and
therefore,
assuming
a
profit
is
generated
above
an
individual’s
capital
allowance,
landlords
will
be
able
to
reduce
their
capital
gains
tax
due
at
a
current
rate
of
18%
or
28%,
which
potentially
partially
offsets
the
impact
in
the
long
term.
Any
announcement
on
a
change
to
a
tax
rule
is
usually
followed
by
advice
on
how
to
avoid
paying
it
and
this
case
was
no
different,
with
advisors’
suggestion
the
new
levy
may
be
avoided
by
splitting
ownership
of
property
with
a
spouse/partner,
by
moving
into
a
property
to
avoid
it
being
classified
as
an
investment
and
acquiring
a
property
through
a
company.
It
is
also
not
clear
on
how
the
new
levy
will
be
applied
to
foreign
investors.
However,
it
is
also
not
clear
that
any
of
these
methods
are,
or
will
remain
viable
and
will
materially
affect
the
impact
of
the
stamp
duty
changes.
Conclusion
Overall,
it
appears
highly
likely
that
there
will
be
a
short
term
rise
in
demand
as
investors
seek
to
complete
property
purchases
before
April
2016.
In
the
longer
term,
against
a
backdrop
of
reduced
property
price
growth
it
is
highly
likely
that
this
week’s
announcement
will
put
off
some
would
be
investors
and
the
market
will
see
a
price
correction
as
others
invest
more
conservatively.
However,
it
feels
too
soon
to
write
of
the
whole
B2L
market.
A
critical
undersupply
of
property,
continued
population
growth,
a
forecast
low
interest
rate
environment
and
potential
growth
in
rental
yields
for
good
quality
rental
properties
all
suggest
that
UK
property
will
remain
an
attractive
investment
for
many.
This
article
was
written
by
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platform,
that
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investors
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acquire
a
share
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UK
investment
property
from
£1,000,
without
the
day
to
day
responsibility
of
managing
the
property.
Please
see
our
website
at
homegrown.co.uk
for
more
information.
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without
substantial
loss
in
value),
and
the
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or
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