If you are in the process of, or thinking about, buying a house or flat, then you need to know about this.
Just after Christmas the government published the detail of its proposals to levy a supplemental stamp duty land tax (SDLT) on the purchase of a second or subsequent residential property.
It is estimated that at least 10% of residential property purchases in England, Wales and Northern Ireland, will be affected by the new charge.
The 3% supplement comes into effect for sales completed on or after 1 April 2016, unless contracts were exchanged before 25 November 2015 (the date of the Autumn Statement when the new charge was announced).
When does it apply?
The charge applies if the buyer owns (or partly owns) two or more residential properties at the end of the day in which the transaction is completed. For this purpose married couples and civil partners count as one buyer.
The 3% SDLT charge will apply to the entire value of the property, where the consideration is £40,000 or more. A home purchased for £250,000 would currently attract SDLT of £2,500. If the SDLT supplement applies, the total SDLT charge will be £10,000:
| Basic charge: | (250,000- 125,000) x 2% | 2,500 |
| Supplement: | 250,000 x 3% | 7,500 |
| Total charge: | £10,000 |
There will be four exceptions to this rule:
- the new property is valued at less than £40,000 (no SDLT and no report to HMRC)
- the new property is not 100% residential – eg: retail unit with a flat above purchased in one transaction
- the purchase is part of a bulk acquisition of 15 or more properties – the government has yet to decide whether this exception should be restricted to just corporate purchasers
- the property is a replacement for the main residence, which has already been sold.
If the main residence hasn’t been sold before the new main home is acquired the 3% supplement must be paid on the purchase of the new property. However, provided the former home is sold within 18 months after the new home is acquired, the SDLT supplement can be reclaimed.
Points to watch
- Properties located anywhere in the world count. So where an overseas buyer with a home abroad buys a UK property that property will be subject to the 3% SDLT supplement. Similarly if a UK first time buyer has a share in an overseas property, then the 3% SDLT supplement applies.
- Properties count if held jointly, if 2 people jointly buy a residential property and one already owns a residential property, then the 3% SDLT supplement applies to the entire property (even though this is the only property that the other has a share in).
- Married couple or civil partners can only have one property between them before the 3% SDLT supplement applies. Unmarried couples can each have one property, as long as they don’t own those properties jointly.
- If a parent buys a residential property for a child or helps a child buy a property and takes a share in that property, the 3% SDLT supplement applies. To avoid this 3% additional cost the parents could act as guarantor on the child’s mortgage, or lend the funds required to the child.
- The 3% SDLT supplement charge will apply to the purchase of a property to be let as furnished holiday accommodation.
- It appears that the 3% SDLT supplement will also apply to corporate purchasers with the exception of bulk purchases of 15 or more properties acquired in one transaction.
The above is an outline of the proposed charge. There is a short period for consultation which closes on 1 February 2016. There may be some changes to those proposals following the consultation period, but we are not expecting any significant change.
For more information on how this may affect you please contact Mark Wildi on 01689 877 081
