Stamp duty reforms will attract more (and bigger) landlords to the rented sector

From Phillip James Letting Agents in Worthing and Brighton & Hove.

Chancellor George Osborne has announced a reform in the way stamp duty is calculated on property purchases. The reforms will reduce the amount of stamp duty land tax (SDLT) paid by landlords buying property in bulk. This reduction in stamp duty should help boost investment in the private rented sector, and bring in more landlords to help satisfy huge demand for rented property.

Stamp duty a huge cost for landlords

Until now, if landlords bought more than one property, the amount of stamp duty payable was based on the individual valuation of each property. Landlords paid stamp duty according to this scale:

So, if a landlord purchased one property for £290,000 and another one for £150,000, then the stamp duty payable would be 3% of £290,000 (£8,700) and 1% of £150,000 (£1,500). The total stamp duty payable on the transaction would be £10,200.

The benefit to landlords buying property

Now, when landlords buy more than one property from the same seller, the ‘mean average’ property valuation can be used to calculate the stamp duty payable. So the same transaction of two properties valued at £290,000 and £150,000 respectively, would have the stamp duty rate calculated using the mean average of these valuations which is £220,000 (to get the mean average you divide the total transaction size in £ by the number of properties purchased). So the stamp duty payable would be 1% 0f £290,000 (£2,900) and 1% of £150,000 (£1,500). The total stamp duty payable on the transaction would be £4,400. This is a saving of almost 57%!

The dawn of the mega-landlord?

Stamp duty remains a major cost involved in the purchase of a rental property. These reforms represent a significant reduction in these costs and the larger the transaction, the larger the benefit that the effective reduction in stamp duty will have. This means large institutional investors like pension funds may now look at investing in the private rented sector to take advantage of the new, lower cost of entry for property investment.

Osborne’s reforms have come after industry bodies including the Association of Residential Letting Agents (ARLA) and the Royal Institute of Chartered Surveyors (RICs) have put pressure on the Government to introduce inititatives that will boost investment in the private rented sector. More and more people are looking to rent property and a better and bigger supply means higher-quality, more affordable housing.

Regardless of which survey or study you look at, tenant demand has never been higher and anything that encourages investment in private rental properties will help satisfy this demand and ultimately this will help tenants within the rented sector.

It’s possible that futher changes to stamp duty will be announced in Autumn 2011 when the Government publishes a review on stamp duty for first-time-buyers.