3 Feb 2016

In its 2015 Autumn Statement the Government announced that from 1 April 2016 there will be higher rates of Stamp Duty Land Tax (“SDLT”) for most purchases of additional residential properties, such as second homes and buy-to-let. This higher rate is set to be 3% above the current SDLT rates, which will be payable on the total price paid for the property. The higher rate will also generally apply to purchases of residential property by companies. Transactions such as first time buyers purchasing their first property or home owners moving from one main residence to another will remain unaffected and will not be subject to the higher rate. The intention behind the proposed change is to help first time buyers to get on the property ladder, and the higher rate is to apply to any transaction that can impact this.

The Government is currently consulting on the policy design, which ended on 1 February 2016, and is scheduled to confirm the final policy at the Budget on 16 March 2016. The main points emerging from the consultation (published on 28 December 2015) are summarised below.

What are the main changes and in what situations will the higher rate apply?

  • If following the transaction an individual purchaser owns two or more residential properties and is not replacing their main residence the higher rate of SDLT will apply.
  • Whether or not the property can be considered as the individual’s main residence will be a factual test, and will depend on factors such as: where the individual purchaser and/or their family spend most of their time; if the individual purchaser has children, where they go to school; where the individual purchaser is registered to vote; where the individual purchaser works; and the correspondence and registration address given to various organisations.
  • From 1 April 2016 the rates of SDLT will be as follows:
Property value Standard Rate Buy-to-let / Second Home Rate
Up to £125,000* Zero 3%
£125,001 to £250,000 2% 5%
£250,001 to £925,000 5% 8%
£925,001 to £1.5 million 10% 13%
Over £1.5 million 12% 15%

*It is important to remember that transactions under £40,000 do not require a tax return to be filed with HM Revenue and Customs.

  • When assessing whether the higher rate applies, property owned globally will be relevant. Even if the property is the first the individual will own in England and Wales, if they own property elsewhere the higher rate will apply.
  • It will not matter how the individual obtains the property – if the property is inherited and/or gifted, it will be considered and the higher rate will apply when the individual comes to purchase a second home.
  • Married couples and/or civil partners will be treated as one unit for these purposes. The same will apply for joint purchasers. Therefore, if one individual already owns a property, this will be considered and the higher rate may apply to both purchasers, even if the second individual does not already own a property.
  • Residential property purchased by a company and/or collective investment vehicle will be subject to the higher rate. This is to avoid the situation whereby individuals purchase an additional property via a company to avoid the higher rate of SDLT. It is quite common in the UK to purchase properties through Special Purpose Vehicles, and this proposal is likely to be a controversial area (and remains subject to the Government’s decision in relation to potential exemptions – outlined below).
  • If the contracts were exchanged after 25 November 2015 and are due to complete after 1 April 2016 they will be subject to the higher rate of SDLT. If contracts were exchanged on or before 25 November 2015 but not completed until on or after 1 April 2016 the higher rate will not apply. Any transaction completed before 1 April 2016 will not be subject to the higher rate.
  • Practically speaking, the change will be implemented by purchasers of additional residential properties ‘opting in’ to the new, higher, SDLT rates where they apply when completing the SDLT Return.
  • There will be a reduction in the filing and payment windows, reducing this time frame from the now 30 days to 14 days. These changes are not set to come into effect until 2017/2018.

When the higher rate of SDLT does not apply?

  • When purchasing non-residential property.
  • When purchasing residential property but following the transaction the buyer only owns one property.
  • When purchasing caravans, mobile homes or houseboats.
  • When purchasing residential property and following this the individual owns two or more residential properties, but the new property is replacing his / her previous main residence.
  • When purchasing residential property and following the transaction the individual owns two or more residential properties, but the previous main residence is sold within 18 months of the transaction and the new property is the new main residence. In this instance, the higher rate of SDLT will be payable, but a refund is available provided the previous main residence is sold within the 18 months.

There may be an exemption for corporates and funds that have an existing residential property portfolio of at least 15 properties at the time of the transaction. There may also be circumstances in which it is justified to exempt purchases made by individuals from the higher rate. The Government is considering a number of alternative methods to deliver this exemption.

The Government’s consultation published on 28 December 2015 can be read at – bit.ly/1ZwQH8v. The consultation will cover which additional properties fall within the higher rate, the interaction between the higher rate and existing SDLT relief and the potential exemptions.

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