Extra stamp duty on second homes explained

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At least 10% of residential property purchases in England, Wales and Northern Ireland, will be affected by the new 3% SDLT supplement, according to the consultation on the new charge.

The 3% SDLT supplement comes into effect for sales completed on and after 1 April 2016. Although if contracts were exchanged before 25 November 2015 - the date the SDLT charge was announced - and completed after 31 March 2016, the 3% additional charge won’t apply.

What it applies to

The basic rule for the 3% SDLT supplement is: if the buyer owns (or partly owns) two or more residential properties at the end of the day in which the transaction is completed, the SDLT supplement applies. This “day” may be extended to a 14 day period.

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 property is a replacement for the main residence, which has already been sold; or

  • the purchase is part of a bulk acquisition of 15 or more properties – the government hasn’t decided whether this exception should be restricted to corporate purchasers or not.

The 3% SDLT charge will apply to the entire value of the property, where the consideration is for £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

Main home

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, where the former home is sold up to 18 months after the new acquisition, the SDLT supplement can be reclaimed. If it takes more than 18 months to sell the former home - no SDLT refund will be due.  The consultation asks whether this pay-now, reclaim later policy would cause hardship or practical problems – respond by 1 February to have your views heard.

The main residence for SDLT purposes will be the actual main residence based on the facts of occupation, not the home that the owner has elected to be treated as their main residence for CGT purposes. This is recipe for confusion. The CGT election for main residence is there for a reason, but it will be ignored for the purposes of the SDLT supplement.    

Married couples and civil partners will be treated as having only one main residence between them, but unmarried couples can have one main residence each. Thus an unmarried couple will be able to own a property each (not held jointly), before they become liable to pay the 3% SDLT supplement on the next property purchase.

Overseas buyers

Properties located outside England, Wales and Northern Ireland will be counted as main or additional homes.  Where an individual owns a property overseas and wishes to purchase a property in the UK, that UK property will carry the 3% SDLT supplement. 

Parents

Where parents take a stake in the property their child is buying, the purchase will be treated as a second home, assuming the parents already own a home. As a result the 3% SDLT supplement will be due on the entire value of the new home. 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.   

Landlords

The Autumn Statement announcement appeared to indicate that companies would not pay the SDLT supplement, but that assumption is not supported by the consultation. Companies will pay the 3% SDLT supplement on the purchase of the first residential property and on all other residential properties, with the exception of bulk purchases of 15 or more properties acquired in one transaction.     

The purchase of a property to be let as furnished holiday accommodation will also be subject to the 3% SDLT supplement.

Scotland

There will be a similar 3% LBTT supplement for purchases of residential properties in Scotland, which will also apply from 1 April 2016. The detailed proposals for the charge in Scotland haven’t been released yet, but they are likely to be similar to those that apply in the rest of the UK.

Respond

The government has allowed only five weeks of consultation for this important topic, as it was late in releasing the consultation document (it was published on 28 December 2015). Please tell your clients about this SDLT supplement as it will affect all landlords who purchase additional properties after 1 April 2016, and those who have difficulty in selling their current home.

Respond by email or post your comments below and AccountingWEB will submit a community response. 

Rebecca Cave
Tax Writer
Taxwriter Ltd
Columnist
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05th Jan 2016 16:45

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Its good to see the retrenching here on the tax payer's PPR being exempt which is not what was said in the speech.

The 18th month exemption for selling your first home if you buy a new one prior to sale seems reasonable, albeit from a cash-flow point of view it is pretty vicious given anyone other than the highly rich will be using a bridging loan to raise the funds and paying something like 1% per month interest.  This will act as a further damper to the functioning of the housing market which already has restricted supply, in part of course due to the high stamp duty rates.

The exemption for 15 properties makes no sense at all from a fairness point of view.

If the chancellor is serious about attacking the rental sector through punitive taxation, why are large landlords exempt?  No logic in this at all. By all means exempt housing associations, but not anyone. 

 

 

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06th Jan 2016 14:37

Extra stamp duty on second homes explained

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By satprof
06th Jan 2016 14:58

Overseas Buyers, Married/Unmarried & Estate Executors

I can't see very many expats 'owning up' to having an overseas property if it's going to cost them an extra £10K or so in tax if they want to buy a home in the UK as well. Still, many overseas properties are purchased through companies, so it should help to keep business flowing nicely for those involved in such work.

As to the married/unmarried couple issue, if the law is to be consistent, the facts of actual occupation should also apply to unmarried couples. Those living together for most of the year in a single property should be treated identically, whether married or unmarried, so that the couple could not then claim to have two PPRs for SDLT purposes. Of course, the sensible thing would be to let every individual have just one property at 'residential' rate of SDLT, so that any kind of couple could have a maximum of two such properties. This would fit much easier in the overall strategy of separation of individual taxation.

It is to be hoped that any legislation makes it clear that any individual estate executors do not have to consider that property(ies) forming part of a deceased's estate need be taken into account for their personal SDLT purposes.

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By norstar
07th Jan 2016 11:03

Discriminates against marriage, and what about foreign investors

So married couples are penalised again. So much for DC's family aspirations. I'd be better off divorced.

Does anyone know about foreign owners buying UK property? Does it apply to them?

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By Dorotah
07th Jan 2016 16:02

What about property developers

Does anyone know whether this will apply equally to businesses buying properties to renovate and sell?

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By satprof
08th Jan 2016 11:32

What about property developers

@Dorotah

What's difficult to understand about:

"The Autumn Statement announcement appeared to indicate that companies would not pay the SDLT supplement, but that assumption is not supported by the consultation. Companies will pay the 3% SDLT supplement on the purchase of the first residential property and on all other residential properties, with the exception of bulk purchases of 15 or more properties acquired in one transaction."

Should you believe that this shouldn't be implemented, reply to the Consultation and say so.

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By pmt1pff
08th Jan 2016 14:54

where a taxpayer is selling

where a taxpayer is selling his house/purchasing a new house but prior to completion inherits a property, would they fall within the rules so the higher rate would apply to the purchase? i am assuming that they would fall within the exemption in the third bullet of the article but this would seem to imply some sort of grandfathering principle for existing second homes (where a liability would only crystallise upon purchase of a 'new' additional property)? i would have thought this would have been specifically mentioned in the article though if it was the case - i would be interested to know what people's views are on this analysis.

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11th Jan 2016 10:55

Simple avoidance

Arbitrary, punitive, politically motivated, complex and will have terrible consequences for anyone who actually needs to rent a property when the supply of them dries up - i.e. all the hallmarks of an Osborne budget change.

Will be very surprised if the actual % of property transactions subject to the tax is as high as 10% - more likely the total volume of transactions will fall such that this measure is a net cost to the treasury.

So, you want to buy a second home?

Move out of main home into rented accommodation and let out the main home

Stay in rented accommodation long enough to establish the rented accommodation as your main home

Buy new property as main home, move into it.

When enough time has passed, move back into real main home, and let out new property.

The anti-avoidance rules around this are going to be as absurd as the original measure... All investment residential property will end up owned by ltd companies, whole thing is a complete waste of time (albeit a very expensive one for people impacted).

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By awoodj
11th Jan 2016 11:03

Attacks those who buy renovate and sell or rent

People buying property in a poor state to either renovate and sell or retain and rent will be unfairly penalised. Many of those properties are of a type which very few first time buyers would ever consider purchasing...at least until someone else has bought and renovated them that is.

Secondly by putting in the bulk purchase criteria this cuts out those very same first time buyers this is supposed to be helping. If sales from portfolio landlords end up being in lots of 16 or up what first time buyer has a chance to buy them, answer none, they are actually excluded from any oppertunity to compete for the property.

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11th Jan 2016 11:05

mouffion

I dont think your proposed events will save the extra stamp duty. When you come to buy the 'new main home' the extra stamp duty is due as you have an existing property.

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11th Jan 2016 13:20

Joint purchasers unfairly penalised

Perhaps one of the most unfair aspects of these proposals is the idea that any joint purchases where one of the purchasers has another home renders the whole purchase subject to an additional 3% SDLT charge. 

A lot of first-time buyers (e.g. in London) looking for their first main residence purchase along with others as sharers, one or more of whom may well have a home elsewhere if they are using the property during the week for accommodation nearer work. Parents (or siblings) also often purchase properties jointly with their children (or brothers/sisters), taking a very small share of the equity, rather than standing as Guarantor - in order to access lending offers from a bigger panel of lenders. This may well not substantially be driven by any investment motive, and is just a means of helping to underpin bank confidence when the main purchaser is self-employed or has not been in employment for long.  

It's easy to apportion the share of equity in a property between one or more purchasers using a Declaration of Trust and holding the property as Tenants In Common, albeit any mortgage would have to be taken out as a joint loan (which is a separate issue). Allowing someone else with another property even 0.1% of the equity would now cause the whole purchase to be subject to a further 3% SDLT, including any majority share of equity acquired by a first-time buyer with no other home.

That result is totally unfair and discriminates against those without the means to purchase their only home alone, and this category of purchasers is the very category of purchasers the Government is purporting to be seeking to help. Perverse SDLT incentives should not, in my view, push first time buyers to seek further State support in the form of Equity Loans when families or unmarried people can otherwise come together and arrange matters between themselves, as they are currently happily doing, and this is a market intervention of the very worst kind from a Policy perspective. At worst, an opportunistic "tax-grab" from those already struggling to stand on their own two feet and families seeking to help each other.  

It is straightforward to apportion the share of equity in any property acquired by one or more purchasers in percentage terms. It is equally straightforward to apply appropriate SDLT rates (only or main residence rate vs higher rate) to the purchase price proportionate to the purchasers' equity shares following those same percentages. A simple adjustment to remove discriminatory tax treatment against joint purchasers who would otherwise benefit from the lower SDLT rates if they were purchasing their home alone.  

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11th Jan 2016 13:46

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