Higher rates of SDLT on purchase of additional residential properties

The government has announced it intends to introduce an additional stamp duty (SDLT) charge. The full/final details are not yet known and will not be published until the Budget on 16 March 2016. Here is a summary of key points based on the information currently available. As this is not yet law, the final position may be different.

1. The starting point is that the higher rate 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.

2. The new tax is to apply to purchase transactions where the price is over £40,000 and where completion takes place on or after 1 April 2016 unless contracts were exchanged on or before 26 November 2015.

3. 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.

4. There is to be 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.

5. The sale and purchase of the main residence does not have to be at the same time. If the purchase is completed within 18 months of the completion of the sale then the higher rate of tax will not apply.

6. 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 could be claimed where the sale is completed within 18 months.

7. A buyer will not be able to elect which property they own is 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.

8. If buyers own another property anywhere else in the world (including Scotland) and are purchasing an additional property in England, Wales or Northern Ireland they will be charged under the new rates. Foreign investors and people not domiciled in the UK will be treated in exactly the same way as UK residents for the purposes of this tax

9. Married couples or Civil Partners will be treated as one unit for the purpose of this tax. 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.

10. Married couples/civil partners will not be treated as one tax unit only where they are separated under a court order or a formal deed of separation

11. 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.

12. 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 we are advised will remain unchanged.

13. Exclusions are to apply to company or fund purchasers that make 'significant investments' in residential property. This is yet undefined with bulk purchases of 15 properties the suggested benchmark. Excluded also are acquisitions of caravans, mobile homes or houseboats. The exclusions do not extend to property bought as furnished holiday lets. The position on timeshares will depend on how they are structured.

This article is not intended to be definitive or to act as a substitute for legal advice or specialist tax advice. The information may be subject to change as the relevant legislation is still subject to consultation and not yet published. For more information please refer to your conveyancer and see the articles published earlier as below.

Stamp duty changes for 2016 and Stamp duty changes in 2016 - update