In the Spending Review and Autumn Statement 2015, the government announced proposals to make changes to the rules relating to the payment of Stamp Duty Land Tax affecting the purchase of additional residential properties.

The proposals are currently subject to consultation which is due to end on 1 st February 2016. If approved the changes will be introduced in the budget due on 16 March 2016 and become effective on 1 st April 2016.

Additional residential properties including buy to let and second homes will attract a higher rate of Stamp Duty Land Tax.

The Changes

Higher SDLT rates will be applicable on any additional residential properties purchased in England, Wales and Northern Ireland on or after 1 st April 2016.

However, it’s worth noting that most residential property transactions will avoid having to pay the higher rates of Stamp Duty Land Tax. For example, if at the end of a transaction a single purchaser will only own one residential property then they will be exempt from these new rates. For those that are joint purchasers, if neither individual already owns one residential property then they too are exempt.

The changes will primarily affect those individuals who had hoped to jump on the buy to let property ladder this year. For them, it will mean saving more money to cover these higher SDLT rates. The new rates are going to be 3% above the current SDLT residential rates and purchasers will be charged based on their property’s value.

New Stamp Duty Land Tax Rate Breakdown
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%
£1.5m + 12% 15%

The Facts

There’s a few fine details to be aware of with these proposed changes, plus there is a transitionary period.

If you have already initiated the process of buying an additional residential property and exchanged contracts on or before 25 th November 2015, but will not complete the sale until on or after 1st April 2016 then there’s good news you are exempt from the higher rates.

If, however, you exchanged after 25 th November 2015 and will complete your purchase on or after 1st April 2016 then these higher rates will apply.

Marriage / Civil Partnership

The .gov.uk website states clearly how the new higher rates will affect additional property purchases for married couples and civil partners.
“Married couples and civil partners may own one main residence between them at any one time for the purposes of the higher rates.
Property owned by either partner (and any minor children) will be relevant when determining if an additional property is being purchased or not. Therefore, an individual buying a property may be liable for the higher rates if his or her spouse or civil partner has an existing residential property. If the spouse or civil partner then sells that residential property they may be able to claim a refund.”
Essentially, the government is going to treat married couples and civil partners living together as one unit, much like other areas of the tax system. However, if the couple is separated by a formal Deed of Separation or under a court order then they are exempt from the higher rates. It’s worth noting that married couples or civil partners that sometimes live apart will need their main property determined so that the individual case can be reviewed.

Joint Property Purchases

If two or more people own or purchase property together then if any of the joint purchasers will own two or more properties and are not simply replacing a main residence, they will be subject to the higher rates of Stamp Duty Land Tax. The key with joint property purchases where two or more properties are owned is simply being aware if a main residence is being replaced.

Main Residence or Not?

In most cases where an individual owns more than one property, it should be pretty clear which is the main residence. Buy to let investors, for example, will have a main residence that they live in and one (or more) that they let out.
Bear in mind, individuals cannot elect which of their properties is the main residence and also “the treatment of a main residence for the purposes of the higher rates of SDLT may differ from the treatment for capital gains tax.” (as stated by gov.uk)
Where the main residence is not clear, HMRC will determine the answer based on fact. They will take a number of factors into consideration such as where the individual works and where the individual and their family spends their time.
Proposed changes to the Stamp Duty Land Tax in 2016 also include a two stage test if the main residence is not made clear. This will consist of:
Stage 1 – if, at the time of the transaction, did a property sell in the last 18 months that was the only or main residence of the individual?
Stage 2 – is the purchaser of the new property intending to occupy that property as their only or main residence?
More information regarding this can be found directly on the gov.uk website.

Useful Information

As stated by the gov.uk website, here are some key facts to note:

The government believes that there should be a maximum 18 month period between sale of a previous main residence and purchase of a new main residence for the purpose of determining whether the higher rates apply.

Where an individual sells their previous main residence within 18 months after purchasing a new main residence, a refund of the higher rates may be claimed.

Stamp Duty Land Tax – Does It Apply To You?

Below is a simple diagram, produced by the Government which summarises the new proposals, and will hopefully give you some guidance on whether the stamp duty land tax applies to you:

Please contact us if you would like any further information about Stamp Duty.