Stamp Duty Land Tax (SDLT) Charges – Buy to Let Beware!!

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From 1st April 2016 purchasers of additional residential properties which will not be used as their main residence will be hit with an additional 3% SDLT surcharge.  This charge will largely impact the buy to let market and those who purchase properties for refurbishment and resale.  We have provided this article to briefly explain how this new charge will be applied.

The additional 3% will be added to the existing SDLT rates which are charged at increasing rates for each part of the fixed price.  The increased SDLT rate will be applied to purchases of additional residential properties where the purchase price is exceeding £40,000 and which complete on or after 1st April 2016 relating to properties in England, Wales, and Northern Ireland.  SDLT does not apply to properties in Scotland.  The below table highlights these changes:

The below diagram sets out the circumstances in which the new SDLT rate will apply.

Source: www.gov.uk

As can be seen the majority of residential property transactions will not pay the higher rates of SDLT.  The higher rates will never apply where, at the end of the transaction, a purchaser only owns one residential property. 

Married couples and civil partners who own one property at the end of a transaction will not pay the higher rate of SDLT.  However, if either of them owns more than one residential property they may pay the higher rates when purchasing another property.  Purchasers in these circumstances will only need to determine whether they have replaced a main residence if they own two or more properties at the end of the transaction. 

HMRC will take into account a number of factors when considering whether a given property is an individual’s main residence.  These will include:

where the individual and their family spend their time;

if the individual has children, where they go to school;

at which residence the individual is registered to vote;

where the individual works;

the location and degree of furnishing and location of movable possessions; or

the correspondence and registration address given to various organisations.

A purchaser will pay the higher rates of SDLT if they are not replacing their main residence and they own more than one property at completion of the transaction.  If they are replacing their main residence, they will not pay the higher rates.  There are certain allowances and reliefs available for purchasers moving their main residence within up to 36 months of completion. 

HMRC can treat properties owned outside England, Wales or Northern Ireland as a purchaser’s main residence.  If such property is not being replaced as the purchaser’s main residence by the property purchased in England, Wales or Northern Ireland the purchaser will have to pay the higher rate of SDLT on the new property.   

Parents helping their children enter the property market may also be hit with the higher rates of SDLT.  The additional 3% SDLT will have to be paid on properties purchased as the main residence for a child if a parent, who already has a main residence, owns an interest in the new property.    

To guard against potential tax avoidance the first purchase of a residential property by a company is subject to the higher rates of SDLT.

For further information and advice, please contact Christopher Williams (cwilliams@jmckee.co.uk) or a member of our residential property team.