HM Treasury has published a consultation on the proposed design of the increase in Stamp Duty Land Tax (SDLT) on additional residential properties from 1 April 2016. The consultation runs until 1 February 2016 and the final design will be announced in the Budget on 16 March 2016.

To recap, the Chancellor announced in his autumn 2015 statement that the SDLT rate for additional residential properties would rise to 3% above the relevant existing rates for the purchase of residential properties.

 

Purchase Price Band (£) Current SDLT Rate (%) SDLT Rate for Additional Residential Properties from 1 April 2016 (%)
0 – 125,000 0 3
125,001 – 250,000 2 5
250,001 – 925,000 5 8
925,001 – 1,500,000 10 13
1,500,001 + 12 15

 

The higher rate will apply to all additional residential property purchases that complete on or after 1 April unless completion is pursuant to a contract exchanged on or before 25 November 2015.

Main Residence Rules

The higher rates will apply if at completion of the transaction an individual owns two or more residential properties unless the new property acquired is to replace the purchaser’s main residence.

So, where an individual owns a buy to let investment and their home (main residence) they will not be hit for the higher rate SDLT after 1 April 2016 when they sell the home they live and purchase a new one to live in.

Individuals will not be able to elect which of their properties is the main residence at any given point to avoid tax on a particular sale. Which is the main residence will be a question of fact based upon factors including where the individual spends their time, where the individual works and correspondence addresses.

Sometimes the sale and purchase of the main residence do not occur on the same day. With this in mind, as long as you sold your main residence no more than 18 months prior to purchasing its replacement you will not have to pay the higher rates of tax. If you purchase the replacement main residence prior to selling the existing one you have to pay the higher rate of tax at the point of purchase but can claim it back if the sale of the existing main residence occurs within 18 months.

Joint Ownership

Married couples and civil partners may own one main residence between them. This means, for example, that if a wife is the sole owner of a property, the acquisition of an additional property by the husband alone will be subject to the higher rates because the couple are treated as one individual by virtue of their marriage.

For unmarried couples and other types of joint owners, if any one of joint owners purchasing property already owns another residential property (and the purchase is not a replacement of a main residence for that individual) the whole of the purchase price will be subject to the higher rates of SDLT.

Minimum Threshold for Higher Rate Tax Liability

The purchase of an additional property worth less than £40,000 will not attract any liability to pay tax.

If an individual is purchasing a residential property and already owns one other residential property which is worth less than £40,000, that property will not be relevant and the purchase of the new property will not be subject to the higher rates.

Non-Residential Property and Multiple Dwellings Relief

There is no change to the definition of what residential property is. A mixed commercial and residential use property will be subject to the existing SDLT rates for commercial/mixed property. A purchase of 6 or more residential properties will be considered to be commercial property and the commercial/mixed rates of SDLT can apply.

Multiple Dwellings Relief (see my earlier article on this subject) can still be used, where applicable, but where the purchase of the property to which MDR will be applied will involve the purchase of additional dwellings the higher rates of SDLT will apply.

Exemptions

Having indicated that companies and pension funds that already have a portfolio of 15 properties may be exempt from the higher rates of SDLT, the government is now minded to exempt any purchaser (i.e. including individuals) that acquires 15 or more dwellings in a single transaction.

The consultation provides some flesh on the bones of the changes to the SDLT regime for additional residential properties but we will need to wait until the 2016 Budget in March before we know exactly what changes will become law on 1 April 2016.

 

Ben Wheeler is a solicitor and acts for individuals and businesses on the acquisition and disposal of commercial property. If you have any queries, then you can contact Ben on 01872 265100 or email solicitors@stephens-scown.co.uk.