If you are looking to complete the purchase of an additional residential property in the UK, a higher rate of Stamp Duty Land Tax now applies. Lyndales’ Kay Piper explains what these changes will mean for you.
What are the new higher rates?
Additional residential properties bought on or after 1st April 2016 will incur a new higher rate of Stamp Duty Land Tax or ‘SDLT’. Basically, anyone who already owns a property (or is married or in a civil partnership with someone who does) and is buying another one will be effected by the changes unless they are replacing their main home.
The new higher rates will apply if the total chargeable consideration (usually the purchase price) exceeds £40,000 and SDLT will be payable on a progressive basis at the following rates:
For example, if the purchase price is £500,000, the first £125,000 of the price attracts SDLT at 3% (£3,750), the part from £125,001 to £250,000 attracts SDLT at 5% (£6,250) and the part from £250,001 to £500,000 attracts SDLT at 8% (£20,000). So, the total SDLT payable on a purchase for £500,000 at the higher rate is £30,000.
Which transactions won’t be affected?
The higher rates of SDLT will not apply if by the end of the transaction day, an individual owns only one residential property, irrespective of the intended use of it. Therefore, it is possible for a buyer who resides in rental accommodation to purchase a Buy to Let property, and not be subject to the higher rates.
What are the rules?
Conditions A to D have to be met for the higher rates to apply:-
Condition A the chargeable consideration is £40,000 or more
Condition B the dwelling is not subject to lease which has more than 21 years to run on the date of purchase
Condition C the purchaser (or their spouse or civil partner) owns an interest in another dwelling anywhere in the world which has a market value of £40,000 or more and is not subject to a lease which has more than 21 years to run at the date of purchase of the new dwelling
Condition D the dwelling being purchased is not replacing the purchaser’s only or main residence
What are the exceptions to the rules?
If contracts were exchanged on or before 25th November 2015 (subject to exceptions, such as sub-sales). Get your solicitor to check the transitional provisions as these are complicated!
Non-residential or mixed use properties (i.e. commercial properties or part-commercial properties)
Transactions where the consideration is less than £40,000
Caravans, houseboats and mobile homes
Purchases that are charged at the 15% flat rate (i.e. purchases of over £500,000 by companies)
The rules are complicated - here’s how we can simplify it:
Work out the SDLT applicable by using the following flowchart >
What if I (or my spouse or civil partner) own two or more properties and I am looking to buy?
Where a buyer (or their spouse or civil partner) owns two or more properties, whether the higher rates apply will depend on if they are replacing their main residence. If the previous main residence has not been sold by the time of completion of a new main residence, the purchase will be subject to the higher rates. However, if the previous main residence is sold within 3 years of the purchase of the new home, the buyer will be able to apply for a refund from HMRC for the difference between the usual rate and the higher rate of SDLT.
Married couples and civil partners are considered to be one tax unit for SDLT purposes. So, where a husband is buying a property just in his name and his wife already owns a property, the purchase will be treated as ‘additional property’ and the higher rate of SDLT will apply, even if the husband does not own any other property.
The only exception here is if the married couple or civil partners are legally separated (by Court order or deed) or they are separated in circumstances likely to become permanent. The Guidance is clear that where one partner remains in the matrimonial home and the other purchases a new home to live in, the usual rates of SDLT will apply as the couple are no longer considered one tax unit and therefore the partner leaving the matrimonial home is replacing their main residence. However, the Guidance is silent on whether both partners can qualify for the ‘main residence’ exemption if the matrimonial home is being sold and both are purchasing separate properties to live in. Common sense suggests as both are replacing their main residence with a new main residence, the exemption should apply to each of them meaning SDLT should only be payable at the usual rates. Yet the legislation states that only the first acquisition of a new main residence is treated as a replacement. Our view is that this should only apply where a main residence has been sold and two purchase transactions are entered into within three years of the sale, in other words, only the first purchase should benefit from the exemption. It seems unfair for this rule to apply where a couple have/are separating and both wish to purchase new homes to live in, but this has not yet been tested.
What about properties purchased in joint names?
For joint purchasers, the higher rates of SDLT will apply if either one of them satisfies the above criteria.
What is a main residence?
This is a question of fact. A person’s main residence is where they reside. The facts and circumstances of the purchaser will be considered, such as:-
If the individual is married or in a civil partnership, where does the family spend its time?
If the individual has children, where do they go to school?
At which residence is the individual registered to vote?
Where is the individual’s place of work?
How is each residence furnished?
Which address is used for correspondence?
Where is the individual registered with a doctor/dentist?
At which address is the individual’s car registered and insured?
Which address is the main residence for council tax?
Whether a new property will be considered to be a main residence, is a question of intention at the time of the purchase. If the property being purchased is subject to a tenancy, then it cannot be considered a replacement of the purchaser’s main home, as there will be a tenant living in the property on the date the property is purchased. The legislation still allows the property being purchased to be considered a main residence if the purchaser does not move in straight away, providing that this is for a valid reason, such as refurbishing or redecorating the property before the purchaser moves in.
Are there exemptions for lease extensions?
One of the unfortunate consequences of the legislation is that it does not include any exemptions for lease extensions, even if the property concerned is the owner’s main residence. So, where an individual lives in a flat and wishes to extend their lease, the usual rates of SDLT will apply providing that individual (or their spouse or civil partner) does not own any other property at the date on which the lease extension is completed. However, if the individual (or their spouse or civil partner) happens to also own another property on the date that the lease is extended, the higher rates of SDLT will apply to the lease extension. In practice, the effect of this means that a considerable number of lease extensions will now be subject to the higher rates of SDLT, especially in London where it is extremely common for premiums payable for lease extensions to exceed £40,000.
What if a property is purchased through a Trust?
Where a legal owner of a property is holding it on trust for another and a beneficiary is entitled to occupy the property or receive the rent (e.g. a bare trust or nominee trust), the basic rule is that the beneficiary will be treated as the purchaser. In all other cases, the trustee will be treated as the purchaser for the purposes of ascertaining whether SDLT is to be paid at the usual or higher rates. The law in relation to trusts is complicated and we suggest you obtain specialist tax advice if your purchase concerns a trust.
Are company purchases affected?
The previous rules stating that any purchase of a residential property by a company for over £500,000 is subject to a flat rate of SDLT at 15% still apply. Where the 15% flat rate applies, this supersedes all other rules. If, however, a company is purchasing a residential property for less than £500,000, the higher rates of SDLT in the table above will apply to the purchase.
What if a property is bought by a partnership?
If a property is being purchased by or on behalf of a partnership, each partner will be treated as a joint purchaser for SDLT purposes. If any one partner is liable for the higher rates of SDLT, the whole purchase will be subject to SDLT at the higher rate.
What if I inherit a new property?
Where an individual has inherited an interest in a property in the three years before a purchase, the inherited property can be ignored for SDLT purposes as long as:
the individual became a joint owner by inheritance; and
the individual’s interest (including that of any spouse or civil partner) does not exceed 50%
Specific rules apply to ascertaining when the property was acquired and how it is held.
Please feel free to contact us if you require any further advice on SDLT or if you wish to discuss your specific circumstances.
This information sheet is not an exhaustive statement of the law and should not be relied upon as legal advice to your specific circumstances.
a useful calculator can be found the hmrc website at https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro" class="redactor-linkify-object">https://www.tax.service.gov.uk...
Guidance on the new rules can be found at https://www.gov.uk/government/publications/stamp-duty-land-tax-higher-rates-for-purchases-of-additional-residential-properties
The government have recently issued further guidance, with more examples at https://www.gov.uk/government/publications/stamp-duty-land-tax-higher-rates-for-purchases-of-additional-residential-properties/stamp-duty-land-tax-amendment-to-higher-rates-for-purchases-of-additional-residential-properties