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Property Alert: New higher rates of stamp duty land tax

26 January 2016

The Government’s Autumn Statement announced higher rates of Stamp Duty (SDLT) would be charged on purchases of additional residential property where the purchase price is in excess of £40,000 such as buy to let properties and second homes. The new rules are expected to affect purchase transactions completing on or after 1st April 2016.

The higher rates proposed will be 3% above the current SDLT rates although the final rules will be announced in the Budget on 16th March 2016. The additional 3% will be levied on all purchases which fit the Government’s criteria of a second home, i.e. those individual purchasers who on completion own two or more residential properties and are not replacing their main residence.

HMRC directs that the higher rates will not apply if you exchanged contracts on a purchase before 26th November 2015 and completion is anticipated on or after 1st April 2016. This will benefit buyers who have purchased properties ‘off plan’ and anticipated paying SDLT at the lower rate.

We have outlined the following scenarios where buyers may have to pay the higher rate of SDLT.

Existing owners planning to buy before they sell

Those who already own a home, and those with a main residence owning a second property for holiday or investment purposes, might be wondering if they will be caught by the new rules if they buy a new family home. The answer is ‘no’ provided they are ‘replacing’ their main residence for another, but there will be a cash flow implication if the new home is bought before the old one is sold. In that case the purchase would trigger the higher rate tax at the time of completion, but the HMRC consultation paper indicates that the additional 3% can later be claimed back from HMRC so long as you complete the sale of your old main residence within 18 months of completion of the new purchase.

Parents helping their children purchase property

Many parents have helped their children get on the property ladder by taking out a joint mortgage and as a result Lenders very often ask parents to become co-owners with their children. In these cases, parents will effectively be purchasing a second home and thus will be caught by the higher rate tax.

Joint Ownership

If a property purchase results in any one of the buyers owning two or more properties on completion, and again, they are not replacing their main residence the transaction will attract SDLT at the higher rate.

The timing of the budget leaves little time to complete the purchase of a second property without incurring the additional tax charge which would explain why there has been a sudden urgency to complete purchases of second homes this side of April.

Whether the proposed changes (if implemented) will have a significant impact on the buy to let market and the property market generally remains to be seen.

Suzanne Porteous
Senior Residential Property Executive