05 Jan Stamp Duty Changes – April 2016
- From 1 April 2016 existing SDLT residential property rates will be increased by 3% for purchases of additional properties such as buy to let properties and second homes.
- Broadly, the higher rates will not apply if at the end of the day of the purchase transaction:
- an individual owns only one residential property, irrespective of the intended use of the property; or,
- an individual owns two or more residential properties, but they are replacing their main residence (subject to certain conditions).
This change will clearly 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 wider, potentially affecting anyone buying a second property, even where their other properties are overseas. Further details below.
The increase in SDLT rates by 3% on purchases of additional residential properties was announced in the Autumn Statement. Last week, the Government published a consultation on the changes which explains in detail how the higher rates are intended to apply in various scenarios.
The higher rates will apply to most purchases of additional residential properties in England, Wales and Northern Ireland where, at the end of the day of the transaction, purchasers own two or more residential properties, and they are not replacing their main residence.
First time buyers purchasing their first property, or home owners moving from one main residence to another, will not be affected.
Points to note
- SDLT only applies to purchases of land and property in England, Wales and Northern Ireland. Purchases in Scotland are subject to the separate Land and Buildings Transactions Tax (LBTT) regulations (beyond the scope of this note).
- Property owned globally will be relevant in determining whether a property purchase is an additional property. So for individuals owning property overseas, they may pay the higher SDLT rates even if this is their first property purchase in England, Wales or Northern Ireland.
- If the purchaser has sold a previous main residence within 18 months before the day of the transaction and the transaction is a purchase of a new main residence, the higher rates will not apply, even where they hold other properties (e.g. buy to let properties).
- If a new main residence is purchased whilst a previous main residence is still owned, the higher rates of SDLT will apply. However, a refund will be available if the previous main residence is sold within 18 months of the purchase of the new residence.
- In cases of joint purchasers, the Government is proposing that if any of the purchasers has more than one property and they are not replacing a main residence, the higher rates will apply to the entire consideration for the transaction. However, they have asked for responses as to whether this is a fair approach.
- The higher rates of SDLT 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 an exemption for “large scale investors”. The exact details of the exemption have not yet been decided. The exemption 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 may be restricted to companies and funds but could be widened to include individuals.
- Purchases by trustees for beneficiaries with life interests or interests in possession will be treated as if the purchase were made by the individual beneficiary themselves. However, purchases by discretionary trusts will always be liable to the higher rates.
- The higher rates will not apply to purchases below £40,000 or purchases of caravans, mobile homes or houseboats.
The higher rates of SDLT will need to be considered in addition to other tax charges when purchasing residential properties. Other tax charges will vary depending on the circumstances and include capital gains tax, income tax, inheritance tax and the annual tax on enveloped dwellings.