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|
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.
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.
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.
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.
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.
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.
About Rebecca Cave
Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.