From 1 April 2016 existing SDLT residential property rates will increase by 3%. This rate applies to the purchases of additional properties such as buy-to-let properties and second homes.
Higher rates will not apply at the end of the day purchase transaction in two conditions
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- If the person owns one residential property only, irrespective of the intent of the use of that property
- The person owns two or more residential properties, but they are replacing their primary residence.
This change will impact Buy to let landlords on top of other recently announced tax changes such as the restriction on interest relief deductions. However, the impact will be broader, potentially affecting anyone buying a second property, even where their other features are overseas.
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Background
An increase of 3% in the SDLT rate was announced on the purchase of additional residential properties in the Autumn statement. Last week, the Government published a consultation on the changes which explains in detail how the higher rates apply in various scenarios.
Overview
Higher rates will apply to the properties purchased in England, Wales, and Ireland.
This will not affect first-time buyers and homeowners who purchase or move from one primary residence to another.
Note
- The purchase of property or land in England, Wales, and Ireland comes under the SDLT tax. Purchases in Scotland are subject to the separate Land and Buildings Transactions Tax (LBTT) regulations (beyond the scope of this note).
- Property owned internationally will be relevant in determining whether a property purchase is an additional property. So individuals owning property overseas may pay the higher SDLT rates even if this is their first property purchase in England, Wales, or Northern Ireland.
- If the buyer sold the primary residence within 18 months of purchase and then purchased a new apartment, then higher rates will not apply, even if the buyer holds other properties.
- If you purchase a new residence with an old residence still in ownership higher SDLT rate applies. The Government has a policy of refund for buyers who sell their previous property within 18 months of purchase of the new feature.
- In cases of joint buyers, the Government has considered that if any of the buyers have more than one property. They are not replacing a primary residence, and then higher rates will apply to the entire transaction. However, they have asked for responses as to whether this is a fair approach.
SDLT
- Higher SDLT rates will apply to all purchases of residential property by a company or collective investment vehicle (subject to the availability of an exemption for “large scale investors” explained below).
- The government is considering the exemption for “large-scale investors”. The exact details of the exclusion have not yet been decided. The exception could be applied either to cases where the purchaser has an existing portfolio of 15 or more properties or only in cases of bulk purchases of 15 or more properties. The exemption is restricted to companies and funds but widens to include individuals.
- Suppose the trustee buys the property for the beneficiary with a life interest or passion interest. This purchase is considered as the individual recipient who made the purchase. However, investments by discretionary trusts will always be liable to higher rates.
- The higher rates will not apply to purchases of below £40,000 or on the purchases of caravans, mobile homes, or houseboats.
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Other taxes
You need to keep higher SDLT rates along with other charges when purchasing a new property. Additional tax charges will vary depending on the circumstances. Tax includes capital gains tax, income tax, inheritance tax, and the annual tax on enveloped dwellings.
