Stamp duty 3% increase (2016 budget), and its effect on future house prices?

cells

mwpt wrote: »

I don't know where to go with this. So this 3% extra stamp duty is also going to be passed on to the subsequent buyers. Boy, you really can't lose in the property business.

my view is that in England the 9 different regions have quite different characteristics and even London has two very different markets with inner and outer having performed very differently.

Successful property investing has been picking the right location just like successful shares investing would be like picking the right stock.

Apple shares have done a lot better than the general market as London property has done a lot better than stoke on trent

padington

mwpt wrote: »

By the way, one thing that I haven't seen discussed is what this does to the flipper market? I know someone who has made a business out of buying properties ripe for "doing up" either by adding floor space or just modernising and selling on. In London, the extra 3% stamp duty is going to eat into profit in this business and this can't just be "passed on to tenants".

You get it back when you sell the property, you can reduce the capital gains tax. It gets passed on to the tax man.

mwpt

padington wrote: »

You get it back when you sell the property, you can reduce the capital gains tax. It gets passed on to the tax man.

Could you quote a source for that? SDLT is deductible from CGT? Or that you're refunded the 3% SDLT (don't believe this is true except for main residence).

wotsthat

mwpt wrote: »

Could you quote a source for that? SDLT is deductible from CGT? Or that you're refunded the 3% SDLT (don't believe this is true except for main residence).

Stamp duty is a cost and can be off-set against CGT so for the longer term holder enjoying a bit of HPI can see their CGT reduced. I'd not thought of that. Don't know if the additional stamp duty can be offset though.

However, I don't see the average Homes Under the Hammer doer upper making enough to have to worry about CGT so the tax has to be paid.

The tax will reduce the number of transactions but also encourage longer term holding of BTL's and second homes.

cells

wotsthat wrote: »

Stamp duty is a cost and can be off-set against CGT so for the longer term holder enjoying a bit of HPI can see their CGT reduced. I'd not thought of that. Don't know if the additional stamp duty can be offset though.

However, I don't see the average Homes Under the Hammer doer upper making enough to have to worry about CGT so the tax has to be paid.

The tax will reduce the number of transactions but also encourage longer term holding of BTL's and second homes.

the capital gains is calculated minus costs, eg if you buy for £100k and sell for £150k the gross gain is £50k. From that you minus any costs like solicitors fees or work you have done to extend or improve and also transaction costs like stamp duty.

What it means is that the stamp duty is reduced by the CGT rate, not eliminated.

If the rules were the same in 30 years as they are now. Someone paying £20k on stamp duty would pay £5.6k less in CGT. However its still a terrible deal because a person is paying £20k more in stamp duty today but reverencing £5.6k lower tax bill in 30 years time. £5.6k in 30 years is worth only about £2k today.


And yes it looks likely that transactions will fall further and property will be extended rather than people moving. This will itself cause house prices to increase as the size and quality of the stock will increase with time as people stay put and improve rather than downsize. It makes it all the harder for people buying the starter homes which have now done from a simple 2 up 2 down to an extended and loft conversion and improved 3 bed 2 bath large kitchen and with the price to match.

westernpromise

cells wrote: »

And yes it looks likely that transactions will fall further and property will be extended rather than people moving. This will itself cause house prices to increase as the size and quality of the stock will increase with time as people stay put and improve rather than downsize. It makes it all the harder for people buying the starter homes which have now done from a simple 2 up 2 down to an extended and loft conversion and improved 3 bed 2 bath large kitchen and with the price to match.

Exactly. I have been banging on about this for years. Sell a £1.5 million house in London and you're looking at a 500% tax surcharge on the transaction costs. So of course you don't sell, because 5/6ths of the cost of doing so is money completely destroyed and wasted. Spend the same in improvements and all but the VAT is value adding.

If I wanted to sell my rental property to buy another, or upsize my main home, that's now economically insane. I'd sell my £975k flat, pay off the mortgage and the CGT, and have about £500k left. I then sell my main home for say £1.3m but I can only afford to pay £1.685 for the next one because the SDLT takes the cost up to £1.8 million, which consumes the entire £500k released from selling the rental.

So I can either have £750k of equity in a rented flat earning 3%, or I can sell up and keep only half of that to put towards my main home. Which is better, saving 3% on £385k, or earning 3% on £750k? Tough call, let me think about that one.

One very, very good way to get the property market moving again would thus be to abolish stamp duty. Or maybe make it a flat rate of 1% with a cap of £10k. The "progressive" approach is manifestly stupid, because a speculator is better off buying four £1 million apartments (4 x 44k SDLT) than one £4 million apartment (£394k SDLT), so that's what they do.

How would it be funded? By the increased CGT flows. In the above example all it would reduce my tax hit by 40% and means I might actually do it. Right now, no chance.