Residential property purchases may now be subject to a higher rate of Stamp Duty Land Tax (SDLT) for second owners.
Normally we can tell if you are liable for the additional 3% stamp duty rate by asking two questions:
|Question 1 – Will the purchase of the property result in you (or your spouse (if any)) owning a share1 in two or more residential properties?||YES||NO|
|If YES then you need to answer question 2.||If the answer is NO there is no additional duty. You do not need to answer question 2.|
|Question 2 – Is the property being purchased replacing your main residence (where you live) which you either are selling at the same time or have sold in the past2?||YES||NO|
|If the response to Question 2 is YES then there is no additional duty||If the answer is NO an additional 3% duty is payable on the purchase price.|
1 some shares in residential property are exempt. They are shares worth less than £40,000; or shares in a property inherited within the last three years which represents less than 50% of the value of the property (including any share held by your spouse (if any)); or ownership of static caravans, mobile homes or houseboats; or shares in residential property outside England Wales and Northern Ireland.
2 If you are buying a new main residence and selling your existing one there will not be a charge to higher rate duty provided you sell before you buy. If you buy a property even a day before the sale then you are required to pay the additional 3% duty and then claim back the additional duty when the sale completes (provided you sell within 3 years). The reclaim process can take around 3 weeks.
Frequent Asked Questions
Is Stamp Duty Land Tax (SDLT) the same as Stamp Duty?
Technically no but in the real world the general public use these term Stamp Duty as this is what the original tax on the land transactions was called. This was replaced with SDLT in 2003 but as the terms are similar articles sometimes misuse the phrase. In theory Stamp Duty only now applies to share transactions but it to most normal people (i.e. non lawyers) a short phrase for Stamp Duty Land Tax.
I am buying my first property but it is a buy to let purchase – does the higher rates apply to me?
No – if you (including your spouse/partner see below) only own one property then the lower rates apply even if you plan to let the property.
I’m buying a second property to let our as a buy to let – do the higher rates apply to me?
Yes – if you already own a property then any further properties will be subject to the higher rates.
I am buying a second property but I am not intending to let the property – do the higher rates apply to me.
Yes – second properties e.g. holiday homes also trigger the higher rate of SDLT (unless the holiday home is a static caravans, mobile home or houseboat where the charge does not apply). The charges does not just apply to buy to let purchases as sometimes reported.
I’m helping my children or grandchildren buy their first property – do the higher rates apply to them?
It may do depending on the structure. If you purchase as a joint owner with your child or children then the whole purchase price will be subject to the higher rates. This does not matter whether you appear as a joint tenant or tenant in common or have a trust deed showing you only have a nominal share in the property. This type of arrangement may be required because you are on the mortgage with your children.
However if you are either lending or gifting the deposit to your children then provided the property is purchased in their names only and it is their first property then the normal (lower) rates of SDLT apply. In this case you can protect your interest on the title by taking a mortgage on the property in your name i.e. you are lending your children a specified sum and you want security for repayment. This will not trigger the charge.
You could also be a guarantor under a mortgage (providing a separate guarantee to the bank to ensure that your children pay the mortgage) which does not make you a owner of the land but these types of mortgage arrangement are rare.
Whatever the arrangement it is important that the property is exclusively in their name.
I am moving but have not yet sold my main or primary residence – do the higher rates apply to me?
Yes – the purchase of an additional property will attract the higher rates of Stamp Duty Land Tax but you can apply for a refund from the Revenue of the extra 3% tax provided you complete the sale of your existing main residence within 3 years of completion of the purchase of the new property.
I sold my main or primary residence last year – do the higher rates apply to me?
No – if you sold your primary residence within the last 3 years (longer periods apply for the transitional period) then you can purchase another property to be your primary residence at the lower rate of SDLT regardless of whether or not you own other properties.
I’m moving to a new home (to be my new primary residence) but renting my old one – do the higher rates apply to me?
Yes – the result is that you own two properties so the purchase of the new property will attract the higher rates of SDLT (regardless of the fact that it is to become your main home).
My wife or husband already owns a property – does that affect me?
Yes – if your spouse (or civil partner) owns a property then as far as the government is concerned you and your spouse/civil partner are treated as one entity (as already exists under the CGT regime for your only or principle residence allowance). If they already own a property then your purchase, even if it is your sole name, will be deemed to be an additional property and be subject to the higher rates of SDLT (but see below if you are separated).
Will I be liable for the higher rate tax if I am separated but not formally divorced from my spouse and I buy a new property to live in?
Married couples who are living separately in circumstances that are likely to become permanent will not be treated as one unit for the purposes of the 3% surcharge. Provided you do not trigger the additional charge by meeting the other criteria then you will not be liable for the higher rate of tax.
What if I already own a property, but I’m buying with my partner who doesn’t?
Unfortunately even if just one of you already owns a home (whether you are living in it or not), when you go to buy another one together, the 3% Stamp Duty surcharge will apply.
Shares in other Property
I already own a share of a property jointly with a friend but am buying another property – do the higher rates apply to me?
Yes – the result is that you own two properties so the purchase of the new property will attract the higher rates of SDLT (regardless of whether or not you make it your main home) unless the share is very low value – is the share is worth less than £40,000.
I have recently inherited a share in a property but I am buying another property – do the higher rares apply?
It will depend. If the share in the inherited property was acquired within the last three years and it represents 50% or less of the value of the inherited property then you will not be liable for the high rate tax. However you need to include within the % calculations any share held by your spouse.
I’m buying my first property but jointly with a friend who already owns a property – do the higher rates apply to me?
Yes – the result is that your friend owns two properties so your purchase of the new property will attract the higher rates of SDLT (regardless of the fact that it is your first property).
I already own a property outside the UK – do the higher rates apply to me?
Yes – if you already own a residential property overseas then any residential property you buy in the UK will be subject to the higher rates.
Can I avoid the higher rates if I purchase in the name of a company?
No – any residential property (be it the first, second or subsequent) purchased by a company will be subject to the higher rates of SDLT (even if the company does not own any other property).
Types of Land
Does the higher rate apply to commercial property purchases?
No – it only applies to residential property. This means that commercial property and mixed use (commercial and residential in one building) property are not subject to the charge. It is also possible to treat 6 residential properties purchased in one transaction as commercial.
If I purchase a plot of land to build a house on it (with or without planning permission) whist I retain my main house to live in I will this be subject to higher rates?
No – the plot of land is not treated as residential property – it is commercial and therefore higher rates do not apply.
If I purchase a residential property with planning permission to turn it into multiple dwellings (houses or flats) will I need to pay the higher rate tax?
Yes because the proposed use does not change the nature of what you are buying – if however you negotiate a provision in the contract to demolish the house prior to completion you could legitimately avoid the higher rate tax.
I am buying a mixed use property including a ground floor shop and a flat or flats above – will the presence of the residential flats potentially trigger the higher rate charge?
No – because mixed use properties are treated as commercial property for the purpose of calculating stamp duty so not only will you avoid the higher rate charge you will also pay duty at commercial rates (which are lower because they commence at £150,000 not £125,000).
Needless to say this is a complex area and therefore specific advice should be sought before submission of any SDLT tax return.
Can we assist?
For further information or to discuss your circumstances in more detail please contact Mark Sadler on 01708 757575 or email email@example.com