Stamping on Residential Property
The 2016 Finance Bill contains significant changes to Stamp Duty Land Tax (“SDLT”) on ‘second homes’ which apply from1 April 2016. Broadly speaking, anyone purchasing a second (or subsequent) residential property from 1 April will pay an additional 3% SDLT over and above the normal rates unless they are replacing their main home.
The changes will affect limited companies, trusts, buy to let landlords purchasing rental property, people purchasing second homes or holiday homes (including Furnished Holiday Lets) and, in certain circumstances, people moving house.
The higher rates apply to individuals where they own more then one home, anywhere in the world. Where the purchaser is married or in a civil partnership, then the higher rates will apply if their spouse also owns a residence.
The only exemption is where the new property is purchased to replace an existing main residence which has been sold within the last 3 years. If the current residence has not yet been sold, then the additional SDLT must be paid and then reclaimed if the current residence is sold within 3 years. This is a significant cashflow impact.
The higher rates and standard rates are shown below:
|Band||Existing residential SDLT rates||New additional property SDLT rates|
|£0 – £125k||0%||3%|
|£125k – £250k||2%||5%|
|£250k – £925k||5%||8%|
|£925k – £1.5m||10%||13%|
Where the second property is worth £40,000 or less, a special 0% rate of SDLT will be applied. When applying the new rules it is important to note that the date of exchange of contracts is not the usual tax point for SDLT, it is the date of completion.
Although the changes were intended to target, and dampen, the buy to let market the effects will be far reaching. In particular for people simply moving house if the sale of one property and the purchase of another doesn’t complete on the same day, so two properties are owned at the end of the day of the transaction, then the 3% surcharge will apply.
Since December 2014, SDLT on residential property has been applied on a ‘slicing’ basis so that a house costing £300,000 for example is taxed at 0% on the first £125,000, 2% on the next £125,000 and 5% on the balance, being £5,000 in total. From 1 April the SDLT on the same property acquired by someone who already owns a house, will be £14,000 – a huge increase of 280%!
As the Finance Bill was originally drafted, where an annexe is purchased with a main residence and the apportioned price for the annexe exceeds £40,000 then the higher rates of SDLT will apply to the whole transaction. The Finance Bill has now been amended so that annexes within the same grounds or building to the main property and where the annexe makes up no more than one third of the total price, then the higher rates do not apply.
The annexe must be capable of being used as a separate dwelling, with its own access and facilities.
Limited Company Landlords
Where a residential property is purchased by a limited company to be rented to unconnected individuals, then the higher rates of SDLT will automatically apply.
Where 6 or more residential properties are purchased in the same transaction then it may be possible to reduce the rate of SDLT, as Multiple Dwellings Relief may apply. This is a complex calculation where the purchases are averaged.
These new rules are contained in the Finance Bill which is still subject to amendment and could change prior to becoming law. Also note that SDLT only applies to England and Wales. Scotland has slightly different rules for the Land and Buildings Transaction Tax. If you are unsure if you need to pay the higher rates of SDLT or to claim a repayment, please contact our Tax Director, Jenny Marks.
To see our other news items please visit our Muras Baker Jones – Blog.