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Increased SDLT Rates For Additional Residential Properties

Higher rates of SDLT (Stamp Duty Land Tax) will apply to purchases of additional residential properties for example second homes and buy-to-let properties.

This will be effective from 1 April 2016, the higher rates will be 3% above the current SDLT rates for residential property, so that the following rates will apply on a progressive basis.

If the consideration is less than £40,000, the additional 3% SDLT charge will not apply.

This was first announced in the 2015 Autumn Statement and a consultation has been on-going since then until the final announcement on 16th March 2016.

The increased SDLT rates will apply if the transaction is a “higher rates transaction”. For the transaction to be classed as a “higher rates transaction” by an individual the following conditions must be satisfied:-

A – the chargeable consideration is £40,000 or more;

B – the dwelling is not subject to lease which has more than 21 years to run on the date of purchase;

C – the purchaser owns an interest in another dwelling 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 dwelling; and

D – the dwelling being purchased is not replacing the purchaser’s only or main residence.

If any of Conditions A to D are not met the higher rates will not apply to the purchase.

A transaction entered into by a buyer that is not an individual will be a “higher rates transaction” if either:

A – the chargeable consideration is £40,000 or more;

B – the dwelling is not subject to lease which has more than 21 years to run on the date of purchase;

An interest for these purposes does not include leases that were originally granted for a period of seven years or less.

A “dwelling” is a building (or part of a building) that is suitable for use as a single dwelling or in the process of being constructed or adapted for such use. It also includes the garden or grounds and any land that subsists for the benefit of the dwelling. HMRC’s guidance states that transactions in a garden, grounds or such land will not be subject to the increased rates if the dwelling is not also acquired by the buyer

A dwelling will be a replacement of an individual’s only or main residence if the buyer intends for that dwelling to be their only or main residence and the buyer sold their previous or main residence in a three-year period, this has been increased from 18 months as proposed in the consultation, ending on the effective date of the purchase of the new dwelling, provided no other main residence is acquired in the interim period.

In these circumstances the increased SDLT rates will not apply. For transactions with an effective date before 26 November 2015, this three-year period commences on the later date of 25 November 2015 and the date of sale of the previous residence.

If a second property is purchased as a main residence without first completing the sale of the existing main residence, the purchase will be subject to the higher rates at the point of completion. However, so long as the first main residence is sold within a 3 year period, an application can be made for a refund of the additional stamp duty paid.

Spouses and civil partners will be treated as one unit, so that they are entitled to only one main residence between them, unless they are separated in circumstances that are likely to be permanent.

The Government had proposed in its consultation that this treatment would apply until the parties were separated under a court order or by a formal deed of separation. However, following responses to the consultation, this has been amended so that it is in line with the capital gains tax treatment.

Any transaction entered into by joint owners will be subject to the higher rates if the above conditions apply to any of the parties.

Persons who are beneficially entitled to property under a trust are also treated as buyers, sellers, owners etc.

It was proposed in the consultation that there would be an exclusion from the increased rates for large scale investment but this has been dropped.

There are some provisions which provide relief for inherited property.

If you require any further advice please contact our Specialist Team