*Updated 14th November, 2017
Why are these changes taking place?
The consultation states that the higher rates of SDLT on purchases of additional residential properties 'continue the government’s commitment to supporting home ownership and first time buyers'.
Buy-to-let and second home Stamp Duty tax bands
|
|---|
| Brackets | Standard rate | Buy-to-let/second home rate (1st April 2016) |
|---|
| Up to £125,000 |
0% |
3% |
| £125,001 - £250,000 |
2% |
5% |
| £250,001 - £925,000 |
5% |
8% |
| £925,001 - £1.5m |
10% |
13% |
| over £1.5m |
12% |
15% |
| Source: HMRC |
|
|
What are the changes to Stamp Duty when buying a UK second home or buy to let in the UK from 1st April 2016?
From the 1st April 2016 anyone purchasing a property in addition to their main home will pay an additional 3% SDLT for the first £125,000 and 5% instead of 2% on the portion between £125,001 and £250,000 and 8% on the amount above £250,001.
For example, if you bought a buy to let property after 1st April, 2016 for £350,000 you would pay 3% on the first £125,000, 5% on £125,001 - £250,000 and 8% on the portion that falls above £250,001.
Calculation:
£125,000 x 0.03 = £3,750
£250,000 - £125,000 x 0.05 = £6,250
£100,000 x 0.08 = £8,000
Total = £18,000
Who pays the higher SDLT?
Under the new proposals, all property owners purchasing an additional property to their main residence in England, Wales and Northern Ireland will be affected by the rise in SDLT. If you already own properties but plan to buy a permanent home to replace another, you are exempt from the paying the higher rate.
If you own two properties on the day of completion of the purchase of your second property but still legally own your first property and plan to sell, you are still obliged to pay the higher rate of SDLT. A refund is available if you sell your former residence property within 36 months.
When applying the higher rates, a small share (50% or less) in a property which has been inherited within the 36 months prior to a transaction will not be considered as an additional property.
How to check if a purchase of a property by an individual is liable for the higher rates
Source:GOV.UK
What if I own a property abroad and buy a second property in the UK?
Property buyers who own and reside in a property abroad i.e. France, but intend to purchase a second property in the UK are eligible to pay the new SDLT rates. The definition of "main residence" will be based on fact (where you live) rather than subject to election, which differs from other taxes.
Are any types of properties exempt from this tax?
Yes. Caravans, houseboats, mobile homes and properties under £40,000 are exempt from the higher rate of SDLT. The consultation says, 'Transactions under £40,000 do not require a tax return to be filed with HMRC and are not subject to the higher rates.'
Potential exemptions
Married couples and civil partners
The consultation states that 'the government will treat married couples and civil partners living together as one unit'. As such, married couples and civil partners who own one property at the end of the day of a transaction will not pay the higher rates of SDLT. However, if either of them owns more than one residential property both may pay the higher rates when purchasing another property.
Couples who are separated will be treated as “separate entities” in terms of property ownership
Purchasing a property for children
The Treasury outlines different structures of property transaction. If parents purchase a property for their children in their name and already own their home, they are eligble to pay higher SDLT as they will own two properties. However, if parents gift money towards a deposit but do not jointly own the property with their child, higher SDLT does not apply.
Multiple purchases
Large-scale investors will be liable for the additional charge. In the consultation document published after the initial announcement in November 2015, there was an indication that investors buying more than 15 units, or who had a portfolio of more than 15 units, could be exempted from the charge, but the Chancellor decided against this.
For more information on proposed Stamp Duty changes on second properties please speak to one of our London or regional property experts near you or contact our dedicated Stamp Duty expert.