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Stamp Duty Land Tax (SDLT) Changes

During the Autumn Statement 2014 the government revealed a fundamental overhaul of Stamp Duty Land Tax (SDLT) on residential property, removing the bands of tax that applied to the whole property value. This change decreased SDLT for 98% of residential property purchasers; aimed at assisting first time purchasers.

The government has continued to show its commitment to assisting people purchase their own home, the Autumn Statement of last year revealed a five point plan to achieve this.
This five point plan includes the introduction of an increase rate of SDLT on the purchase of ‘additional’ residential properties, i.e. aimed to affect those purchasing second homes or buy-to-let properties. The additional SDLT received by the HMRC is to be (partially) used to increase the affordable housing budget, further assisting first time purchasers.

On the 28th December 2015 the government released an open consultation which ended on 1st February 2016. Confirmation of the final policy was revealed during the Budget on the 16th March 2016. Not much has altered from their original proposals, the main difference is that there is not going to be an exemption for owners with a portfolio of more than 15 properties, i.e. no matter how large your portfolio the higher rate will apply. Furthermore you will have up to 36 months (instead of 18 months) between the sale and purchase of a main residence (explained in further detail below).

The higher rates will only apply to matters that complete on or after 1st April 2016, provided contracts were exchanged after 25th November 2015. For those matters that have exchanged prior to 25th November 2015 then the current rates will apply no matter whether they complete on or after 1st April 2016.

On the face of it, the change is simple. Those properties that are being purchased as buy-to-let properties or as second homes will attract an additional 3% SDLT, as per the table below:

 

Band Existing residential SDLT rates New additional property
£40k – £125k 0% 3%
£125k – £250k 2% 5%
£250k – £925k 5% 8%
£925k – £1.5m 10% 13%
£1.5m + 12% 15%

However, do the higher rates apply to a purchaser who is replacing their main residence but is purchasing prior to selling? Do they apply if you move house but already own a buy-to-let property?

In essence if upon the day of completion you have purchased a property that is not to be your main residence and you own at least one other property, then you will pay the higher rate of SDLT. However in the event that you purchase a property to use as your main residence with the intention of selling your existing main residence within 36 months then you still have to pay SDLT at the higher rate but can apply for a refund upon the sale of the existing residence, this applies whether you own other property or not.

Example A – A owns a house as a ‘main residence’ and is purchasing a buy-to-let property – the higher rates apply

Example B – B owns two houses, a ‘main residence’ and a buy-to-let. B sells his main residence and purchases another – the higher rates do not apply

Example C – C owns a house as a ‘main residence’ and is purchasing a new ‘main residence’ however she has chosen to let her existing ‘main residence’ instead of selling it – the higher rates apply

The government will treat married and civil couples living together as one entity; property owned by either partner will be considered when applying the higher rate of SDLT, i.e. an individual purchasing a property will attract the higher rate if her/his husband/wife owns another property.

The above is a summary, based on my reading of various articles and documentation from various sources including the HMRC. It is by no means a complete instruction of the proposed SDLT changes.

Christopher D. Maddison
Solicitor
Marcus Baum Solicitors