Higher rates of SDLT on the purchase of additional residential properties from 1st April 2016
A summary of the key points for a buyer
My previous posts gave the position following the Autumn Statement, then following the release of the Consultation documents, and finally following the Budget. This post is now to give a summary of the key points going forward from 1 April 2016. Future posts will look at key features in more detail.
- The starting point is that the higher rate of tax will apply if "at the end of the day of the transaction" an individual owns more than one residential property, irrespective of the intended use of the property.
- The higher rates will apply to residential purchase transactions where the price is £40,000 or over and where completion takes place on or after 1 April 2016, unless contracts were exchanged on or before 26 November 2015.
- The additional charge is termed as higher rate charge but the reality is that it is a surcharge. This will be 3% of the purchase price payable in addition to the SDLT which would currently be payable. As an example: on a purchase at £275,000 the duty would increase from £3,750 to £12,000.
- The higher rate applies to the purchase of a 'major interest' in one or more 'dwellings'. A transaction of i.e. garden land or a garage to be used for residential purposes but without involving the purchase of a dwelling would not be liable to the higher rates.
- A major interest of land includes a leasehold interest where the lease was originally granted for 7 years or more. However the purchase of a freehold or leasehold interest which is in turn subject to a lease with more than 21 years remaining will not be charged at the higher rates. An existing interest held by a buyer which is worth under £40,000 can be disregarded.
- There is a limited exemption so a buyer may replace their main residence without paying the higher tax even if they may still own two properties. That is to sell their main residence and replace with this a new one.
- The sale and purchase of the main residence does not have to be at the same time. If the purchase is completed within 3 year of the completion of the sale then the higher rate of tax will not apply. As a transitional provision the 3 year period will not apply where the replacement purchase is on or before 26 November 2018. The property sold (former main residence) must have been the only or main residence of the buyer at some time during the 3 year, or transitional period.
- Where a new main residence is purchased before the current one is sold, at the point of the completion of the purchase the buyer will own two properties and will be liable to pay the higher tax. This would be payable on the purchase completion but a refund can be claimed where the sale is completed within 36 months. In addition the higher tax would not have to be paid on the purchase completion, if the sale completed before the SDLT Return was submitted. This will only give a narrow opportunity as tax is payable within 30 days of completion.
- A buyer cannot elect which of their properties is to be regarded as their main residence, as is possible for other taxes. This will be a matter of fact, based on where they spend their time, their children go to school etc.
- A buyer who owns another property anywhere else in the world (including Scotland) and is purchasing an additional property in England, Wales or Northern Ireland will be charged under the new rates. Foreign investors and people not domiciled in the UK are treated in exactly the same way as UK residents for the purposes of this tax
- Married couples or Civil Partners are treated as one unit for the purpose of this tax. So anything owned by one is treated as jointly owned. Therefore a purchase by one may be chargeable if the other owns property already, unless the purchase is to replace the main residence. So, if one of the couple owns property in their sole name, and the other wishes to buy a property in their sole name this new purchase will be subject to the higher tax.
- Married couples/civil partners will be treated as divorced for these purposes if they are either legally separated (by court order (i.e decree nisi) or deed of separation) or where they are 'living separately in circumstances that are likely to become permanent'.
- Other types of joint purchasers will also be subject to the higher rate if only one of them owns additional property, unless the purchase is to replace the main residence. That is, there is no discount or exemption if one or more joint buyers are buying what will be their only property if another joint owner does own other property.
- Any purchase by a company will be subject to the tax. That is, a first purchase and any subsequent purchase. A purchase by a company at over £500,00 is already subject to a rate of 15% which remains unchanged.
- A small share namely 50% or less, in a property inherited within 3 years prior to the transaction can be disregarded.
- Exclusions apply to the acquisition of caravans, mobile homes or houseboats. The exclusions do not extend to property bought as furnished holiday lets.
- An online calculator has been produced to enable buyers to work out the SDLT which is payable: https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro