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Understanding Stamp Duty Land Tax on second homes

Higher rates of Stamp Duty Land Tax (SDLT) are to be introduced for the purchases of second homes. The rate hike will see an additional 3% charged on top of the current residential rates hoping to raise the government £60 million to fund a doubling of the affordable housing budget.

Whilst this is still in consultation, the timescales laid out leave little time between the end of the consultation and implementation and so investors and the professionals involved in advising on and collecting SDLT would be wise to familiarise themselves with the changes.
The general rule is that individuals will pay the higher rates of SDLT on purchases of residential property if they own two or more properties at the end of the day in which the transaction took pace, unless the property purchased was to replace their main residence. What constitutes a ‘main residence’ will be decided on the facts.
The higher rate will apply to all relevant transactions that complete on or after 1st April 2016. The rate will also apply if the transaction exchanged after 25th November 2015 but completes after 1st April 2016.
Whilst the intention is to catch buy-to-let investors and those purchasing second homes it is likely that the general rule will catch others that were not intended to pay the higher rate. For example, the government has acknowledged that where there is an overlap between the purchase of a new main residence and the sale of an old main residence, the higher rate will have to apply according to the general rule. Therefore, a refund provision has been included so that provided the original main residence is sold within 18 months of the purchase the additional tax paid can be reclaimed.
Joint Purchasers
Furthermore, married couples are to be treated as one entity for the purposes of SDLT.  Therefore, if one owns a single property and husband or wife also then buys a property of their own, that property will be treated as a second home for the purposes of SDLT.
Similarly, where property is purchased jointly, if any of the joint purchasers own two or more properties and the purchase is not replacing a main residence then the higher rate will apply.
It is the governments intention that the higher rate will also apply to partnerships. Partnerships are generally treated for SDLT purposes as if the partners are joint purchasers of partnership property and this is unlikely to change. Therefore, if a partnership purchases property and they own two or more properties they will pay the higher rate of SDLT on that purchase.
Mixed use properties
Properties that have a mixed use, for example, a shop with residential flats above will remain “non-residential” for the purposes of SDLT as will bulk purchases of 6 or more residential properties.
The existing scheme of ‘Multiple Dwelling Relief’ will continue to apply and will work in the same way.  However, the higher rate must be applied in the first instance. Therefore, a purchase of 3 residential properties at £100,000 would attract the higher rate but the relief can be claimed so that tax is paid on the average value of the properties three times, rather than at 8% on the value of the whole transaction, saving £15,000 in this instance.
Where 6 or more properties are purchased in a single transaction the buyer can elect to pay the higher residential rate and apply the relief or pay the non-residential rate, whichever is better for them.
Exemptions
Social Landlords and charities will remain exempt from SDLT in the same circumstance as they are currently.
The government is looking to create an exemption or relief for bulk purchases or properties which will significantly contribute to the new housing supply and the governments wider housing objectives. The consultation is seeking views on whether an exemption based on bulk purchases of 15 or more residential properties on the basis that bulk purchases are more likely to provide finance and certainty to a project.
The consultation closes on 1st February 2016 and the final design is due to be announced at the Budget on 16 March 2016.
Whether you are a serial property investor or just looking to buy that one property to provide you with a steady income, the Commercial Property and Residential Conveyancing Teams at Wilson Browne Solicitors can help guide you through the process, so if you need honest, down to earth advice then contact us today.