In the 2015 Autumn Statement and Spending Review the Government announced its intention to change the Stamp Duty Land Tax (“SDLT”) regime, and an outline of the proposed changes can be found here.
Following this (and a consultation on the policy design, which ended on 1 February 2016) the final policy was confirmed in the Budget on 16 March 2016. This article summarises the main points in relation to both residential and non-residential property.
Higher rates of SDLT now apply to purchases of additional residential properties that complete on or after 1 April 2016.
- From 1 April 2016, an extra 3% levy will be applied to standard SDLT rates on all purchases of additional residential property above £40,000, such as buy-to-let properties and second homes.
- The higher rate will apply if the following conditions are met:
- the chargeable consideration is £40,000 or more;
- the property is not subject to lease which has more than 21 years to run on the date of purchase;
- the purchaser owns an interest in another property which has a market value of £40,000 or more and is not subject to a lease which has more than 21 years to run at the date of purchase of the new property (properties outside of England, Wales and Northern Ireland are to be taken into consideration);
- and the property being purchased is not replacing the purchaser’s only or main residence (all of the facts and circumstances of the particular case will be considered in order to conclude whether a property is considered a ‘main residence’ and is not necessarily where the purchaser spends the most time).
If any of the above conditions are not met, the higher rates will not apply to the purchase.
- It is important to note that the conditions above apply to both foreign and domestic purchasers. In addition, if a property is to be purchased by joint purchasers, the higher rate will apply even if the above conditions are only met by one individual. The rule also applies where a purchaser is married or in a civil partnership and their spouse / civil partner meets the above conditions, whether or not they are intended to be listed as a joint purchaser.
- From 1 April 2016 the rates of SDLT are as follows:
||Buy-to-let / Second Home Rate
|Up to £125,000*
|£125,001 to £250,000
|£250,001 to £925,000
|£925,001 to £1.5 million
|Over £1.5 million
*It is important to remember that transactions under £40,000 do not require a tax return to be filed with HM Revenue and Customs.
- The higher rate also applies to companies (and other non-individuals) who meet conditions 1 and 2 listed above, and there is no exemption available for large scale investment by investment funds and corporates.
- This higher rate will not apply:
- When purchasing non-residential or mixed use properties (such as a shop with a flat above).
- 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 three years 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 three years. Repayments need to be claimed within three months of the sale of the previous main residence, or within one year of the filing date of the return whichever comes later. An SDLT repayment request form needs to be completed.
- If contracts were exchanged on or before 25 November 2015 but not completed until on or after 1 April 2016. Please note this transitional provision may not apply to certain transactions which involve certain significant variations of a contract, assignment of rights or sub-sale, or which arise from the exercise of certain rights or options.
- If the contract has been entered into and substantially performed on or before 25 November 2015.
- Relief may be available where a transaction involves the purchase of six (or more) residential properties. Here, a purchaser can choose whether to pay SDLT at the non-residential rate (outlined below) or claim multiple dwellings relief. If the latter is chosen, the higher rates will apply, the minimum rate payable being 3% for purchases up to £125,000.
Following the Budget a zero rate band has been introduced, and the new rates apply from midnight on 16 March 2016, increasing SDLT on the highest value commercial property, whilst lowering the amount paid on properties with a lower value. Where contracts have been exchanged but the transaction not completed before this time, purchasers will have a choice as to whether the old or new structure and rates apply.
- New SDLT rates for commercial property are:
|Net present value of rent
|Up to £150,000
|£150,001 to £250,000
- The “slab” system will no longer be employed, whereby the same tax rate was applied on the whole value of the property. Instead, SDLT will be charged at each rate on the portion of the purchase price which falls within each rate band (using the bands above).
- There will also be a 2% rate for those high value leases with a net present value above £5 million. The new rate banks and threshold for rent paid under a lease are:
|Net present value of rent
|Up to £150,000
|£150,001 to £5,000,000