Buy to Let and Help to Buy

housekeys   Buy-to-let landlords and people buying second homes will soon have to pay more in stamp duty, the chancellor has announced.

From April 2016, those in England and Wales will have to pay a 3% surcharge on each stamp duty band.

The stamp duty surcharge will lift each band by 3%. That means that for properties worth between £125,000 and £250,000, where the stamp duty is 2%, buy-to-let landlords will pay 5%.

For the average buy-to-let purchase of £184,000, that means they will pay an extra £5,520 from April 2016. And, of course, that also applies to second homes; don’t you have to ask how moral it is to have two homes when there are people who can’t even afford one?

Landlords are already due to get a lower rate of tax relief on mortgage payments. In his summer Budget, the chancellor said that landlords would only receive the basic rate of tax relief – 20% – on mortgage payments, a change being phased in from 2017.

Help to Buy

The Help to Buy (equity loan) scheme in England will also be extended to 2021, one year longer than planned and will be interest free for five years.

This scheme includes an extra £2.3bn in loans for the government’s starter homes programme, and £4bn lent to housing associations and local authorities to build more homes for shared ownership.

Another £200m will be used to build homes for rent, which will allow tenants to save for a deposit.

There will also be a pilot scheme to trial the government’s Right to Buy programme for housing association tenants. Five housing associations will take part, to help design the final scheme.

What is it?

First-time buyers will be able to save in a Help to Buy Individual Savings Account (HTB Isa) and the government will add money to it – you must be a UK resident, and a first-time buyer andyou cannot have owned a property anywhere in the world.

The property must be purchased with a mortgage. It cannot be a second property, or for buy-to-let purposes. The maximum purchase price is £250,000 [or £450,000 in London].

In the first calendar month, you can kick start the Isa with up to £1,200. This does not have to be paid in one go. But you may want to open the account early in the month to take most advantage of it. In subsequent months, you can pay in up to £200

As with a traditional cash Isa, the interest you earn will be free of both income and capital gains tax.

In addition, when savers take money out to buy a house or flat, the government will add 25% to whatever is in the account, up to a maximum of £3,000 – if you have saved at least £12,000.

The minimum it will add is £400, meaning you need to save at least £1600.

Your solicitor or conveyancer will apply for the bonus when you buy a property. If there is no house purchase, your savings will continue to receive the interest payable on the Isa account.

Only one person can own any particular ISA, but two people buying a property together can each use their bonuses to have an ISA each, giving them up to £6,000 to set against the purchase price.

You can start a HTB Isa up to 30 November 2019. After that date, you can continue to save in existing accounts. But all bonuses must be claimed by December 2030.

You can open one cash Isa in any tax year. So you can still have cash Isas from previous years, and open a HTB Isa too. If you have already opened a cash Isa in the current tax year, you cannot continue to hold that, and open an HTB Isa. So you will have to close the cash Isa.

Up to £1,200 can be transferred directly to the HTB Isa; the rest can be put into a stocks and shares Isa, or a non-Isa account.

The only exception to this is if your Isa manager offers an “umbrella” or “portfolio” arrangement, in which case it may be possible to maintain both a cash and an HTB Isa from the same tax years.

Important financial decisions are best taken with advice from an independent financial adviser

Help2BuylogoHow does it work?

Read:     Don’t We All Want a Place to Live?