Stamp Duty Tax Hikes Push Buyers out of London

After 2016’s stamp duty changes saw rates increase on properties throughout England and Northern Ireland, many buyers are finding it difficult to acquire homes or buy to let investments in more expensive areas of the UK.

With stamp duty intrinsically linked to the price of property, the impact of UK house inflation on tax is simply unavoidable and homes are being forced into upper tax bands in particularly high-priced cities.

London is well known for its extortionate pricing of property which has been increasing for years on end. A typical London apartment costing around £518,511 would have paid only £15,926 in stamp duty tax before George Osborne’s changes two years ago. However, an apartment of the same price would now owe £31,481 in stamp duty and this is without factoring in a rise in value of the property.

An extra 3% was added onto both standard and buy to let rates for stamp duty in 2016, meaning that those properties between £250,000 and £925,000 for instance, are eligible for 5% and 8% in comparison to the previously lower rates of 2% and 5% for single and additionally properties respectively. This sort of inflation is true across all tax brackets.

First-time buyers have also suffered from the lethal cocktail that is growing house prices and augmenting stamp duty tax. Any properties below £300,000 for first-timers in the market will be exempt of the tax. However, with the rule rolled out across the whole of England and Northern Ireland, some people are benefiting more than others because of where they’re buying property.

For example, it’s far easier to find a property in the North of England under £300,000 and to therefore evade having to pay the dreaded tax. Nevertheless, property in the capital is far more high-cost and thus buyers struggle to locate the properties they want for under the all-important stamp duty threshold. After all, why invest in London when you can acquire a bigger and better property for less money in an arguably superior city and pay no stamp duty at all?

Many investors are reacting to the steep surge in stamp duty by avoiding the London region for property investment altogether. Locations in the North such as Liverpool and Manchester present more affordable housing and apartments which naturally come with a much cheaper stamp duty bill.

RW Invest have a stamp duty calculator which works out the amount of tax paid on buy to let, single and additional residential property purchases. When using it to compare the stamp duty on an average priced London property and an average priced Liverpool property, savings on stamp duty could be as high as £44,245 for buy to let.

These figures alone show just how much investors can save when relocating to more economical and up and coming parts of Britain. As a result, London is seeing a reduction in property investment as many buyers admit that they have altered their initially preferred location for investment in favour of lower costing areas directly because of stamp duty.

London house prices are set to rise by 41% by 2028, a tremendous rate of inflation which will elevate the cost of stamp duty even higher for many buyers in its market. With these kinds of numbers predicted for the future, it’s certain that many more investors won’t be choosing London for their next property investment.