Higher Rates Of Stamp Duty Land Tax (sdlt) On Purchases Of Additional Residential Properties

The Government introduced a consultation on 28 December 2015 whereby it proposes to introduce higher rates of Stamp Duty Land Tax (SDLT) on purchases of additional residential properties. The consultation will run from 28 December 2015 to 1 February 2016. Confirmation of the final design will be announced at the Budget of 16 March 2016, and the higher rates will apply from 1 April 2016.

The Government states that the proposed change aims to free up housing for buyers, but this will add thousands to buy-to-let property transactions, or those intending to own more than one property, even if they are not intending to let these out.

Who will be affected by the proposed changes?

Anyone owning a second property that isn't their main residence and buying another, or replacing the one they don't live in, is likely to get caught up in the changes.

This means anyone who already owns a portfolio of buy-to-let properties, or has a second home, can buy a new home to live in and will not have to pay the extra stamp duty.

How to check if a purchase of a property by an individual is liable for the higher rates

Below is the flow diagram, included in the Government consultation, which shows who will be affected:


What are the new rates?

The proposed higher rates will be three percentage points above the current residential rates, including the 0% band.

They will be charged on the portion of the value of the property that falls into each band.

Below is a table showing the current and proposed SDLT rates:

Band Existing Residential SDLT Rate Proposed Additional Rate
£0-£125,000 0% 3%
£125,001-£250,000 2% 5%
£250,001-£925,000 5% 8%
£925,001-£1.5 million 10% 13%
£1.5 million+ 12% 15%

For example, any one buying a £200,000 second home or buy-to-let before 1 April 2016 will pay Stamp Duty Land Tax of £1,500. This is based on paying 0% on the first £125,000 of the property value and 2% on the portion between £125,001 and £250,000.

From 1 April the purchaser would have to pay 3% for the first £125,000 and 5% instead of 2% on the amount between £125,001 and £250,000. This gives a total bill of £7,500. Therefore, a Landlord or a second home owner will end up paying five times more than a purchaser who was to own this as their only home.

Forming a Company

Many landlords are setting up limited companies to shield themselves from earlier announced buy-to-let changes that will see mortgage interest relief reduced to the basic rate of tax from April 2017. Companies can still get mortgage interest relief at their marginal rate, which may be higher than the basic rate of 20%, but they will not be able to escape the extra stamp duty changes. The Treasury is proposing that the first purchase of residential property for companies is subject to the higher stamp duty rate. The only exemption proposed is for companies holding more than 15 properties.

Buying a home and keeping your old one or flipping your main residence

It has been suggested that a way to possibly avoid the extra stamp duty land tax is to buy an additional home and move into that and then let out your former one. The Treasury is being pretty strict on the definition of main residence when it comes to the extra stamp duty charge. If you buy a second property you will always have to pay the higher rate of stamp duty, even if you plan to live in it and rent out your old one. If you keep your old home at the time of completion you will need to pay the extra stamp duty charges, even if you move into a new main residence. The only leeway is that you could get a refund of the stamp duty if you sell your old property within 18 months. This aims to help those who may hit delays in the selling process. You will need to apply for the refund through HM Revenue & Customs.

Transition

The higher rates will only apply to the purchase of additional residential property which complete on or after 1 April 2016. If contracts are exchanged after 25 November 2015 then the higher rates will apply if the property is completed on or after 1 April 2016. However, if contracts are exchanged on or before 25 November 2015 but not completed after 1 April 2016 the higher rates will not apply.

Married Couples and Civil Partners

The Government will treat married couples and civil partners living together as one unit. This means that any homes owned by either partner will be included when the stamp duty bill becomes due on the purchase of another property. An individual buying a property may be liable for the higher rates if his or her spouse or civil partner has an existing residential property. If the spouse or civil partner then sells the residential property they may be able to claim a refund within 18 months.

The Government is also proposing the same system for joint purchasers so co-habitees who are not in a relationship may not be at any advantage.

Purchasing a property for children to live in

According to the consultation document if a couple buys a property for their child and are named on the deeds with their child or purchase this in their own names for their child to live in, and they already own a property they will be charged the higher rate. The only way around this would be to buy the home in the child's name outright. This would of course not be possible if the child was unable to get a mortgage in their sole name.

Buying if you own a home abroad

Property owned globally will be relevant to determining whether a property purchased in England, Wales and Northern Ireland is an additional property. This means that if someone is purchasing their first or only property in England, Wales or Northern Ireland and they already own a property outside these areas they may have to pay the higher stamp duty rate. This would apply to a foreign home owner buying in Britain, a Briton with a holiday home, or someone who owns a Scottish property.

Exemptions

The following types of property will not fall under the stamp duty changes:

  • Caravans, mobile homes and house boats
  • Property worth less than £40,000;
  • Social landlords and charities will continue to be excluded from the stamp duty changes;
  • Multiple purchasers, the Government is proposing to exempt companies already owning 15 properties from the extra stamp duty. The owners may be corporates, funds or significant investors boosting the nations housing
  • stock.

The Government is also seeking views on whether individuals making bulk purchases of 15 or more properties should be excluded from the extra charge.

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