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SDLT and additional residential properties

13th Apr 2016
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Ben Chaplin outlines how changes to Stamp Duty Land Tax may affect the buy-to-let and second-homes property markets

As part of the Government’s five-point plan for housing announced during the Spending Review and Autumn Statement 2015, higher rates for Stamp Duty Land Tax (SDLT) on additional residential properties were proposed. Consultation on the issue closed on 1 February 2016, with final details to be released at the Budget on 16 March 2016. It is proposed that the planned changes are to come into effect from the 1 April 2016.

Given the close proximity of the date a heads-up to your clients may well be wise!

The higher rates of SDLT will be applied to those who are buying a second residential property that is not directly replacing their main residence (see table, below).

Band                     Current basic SDLT rates         Additional Property rates

£0-£125k                              0%                                      3% (unless below £40K)

£125k-£250k                         2%                                       5%

£250k-£925k                         5%                                       8%

£925k-£1.5m                        10%                                     13%

£1.5m+                                 12%                                     15%

The higher rate will not apply to an individual who does not own any other property irrespective of its intended use. Equally, where a purchaser (or in the case of joint purchasers) are replacing their main residence they will not pay the higher rates. However, situations can arise where there is a delay in selling the old main residence and so there is a period of time where two residences are owned. The additional rates of SDLT will be due in these cases, but with the introduction of a refund mechanism for those who sell their previous main residence within 18 months of the purchase of the new residence. For the purposes of SDLT, married couples and persons in a civil partnership are classed as one entity and the ownership of property is viewed as such. For example, if a married couple own one property and then decide to buy an additional property as, say, a buy-to-let, they will be subject to the higher charge. Or if either partner owns a property before acquiring a main residence, then the acquisition of the main residence will be subject to the additional higher rates.

If the couple split, then any purchases will be treated as a joint acquisition up until the point they receive a formal deed of separation or court order.

The higher rates of SDLT will only apply to purchases of residential property. This means that the purchaser of non-residential property will never pay the higher rates of SDLT. Non-residential property includes commercial properties such as shops and agricultural land.

In essence, therefore, these changes will target investors purchasing typical buy-to-let properties. For example an additional residential property is purchased for £200,000. SDLT is calculated as follows:

3% on the first £125,000 = £3,750

5% on the remaining £75,000 (the portion between £125,000 and £200,000) = £3,750

The total SDLT due is therefore £3,750 + £3,750 = £7,500

The consultation is considering whether property investors who buy in excess of 15 properties should qualify for an exemption but this has yet to be defined further.
Trusts and settlements will also be affected by these rules as will the first purchase by a company or collective investment vehicle. The higher rates will only apply to purchases of additional residential property that complete on or after 1 April 2016. If contracts are exchanged after 25 November 2015 then the higher rates will apply if the purchase is completed on or after 1 April 2016.

Clients in the process of acquiring second properties should be made aware of these new SDLT charges as the impact can be significant.

The above is intended as a brief outline of the rules pending finalisation. If you have a question on this subject or if you would like to find out more about the services Taxwise provide contact us on 0844 892 2473 or email [email protected] • Ben Chaplin is Managing Director of Taxwise Services

This article is taken from “Accounting Practice” the ICPA quarterly magazine. Dedicated to supporting and promoting the needs of the general practitioner. You can find us at www.icpa.org.uk or email [email protected] or by phone on 0800-074-2896.

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