Stamp Duty Land Tax – Additional residential property rate

April 2016 saw the introduction of a 3% surcharge on certain residential property transactions. The national press have variously described this as a tax on second homes, or a tax on buy-to-let properties. This may cause some people to assume that it will not affect them, but the charge is a lot wider than a simple headline can ever convey and the detailed rules can produce some quite unexpected results.

The first thing to be aware of is that there is no automatic exemption for the purchase of a main residence, only for the replacement of one that has been sold. An individual who owns a buy to let property and subsequently purchases a house in which they intend to live, will pay the SDLT surcharge on the purchase of their main residence.  The exemption that applies when the purchased dwelling is a replacement of a main residence requires that a previous main residence has been sold within the last three years.  If a new home is purchased before the old one has been sold for whatever reason, the additional 3% is payable, but if the previous main residence is sold over the following three years, application can be made for a repayment of the higher rate.

For individuals, a key test is whether he or she owns more than one residential property at the end of the day of the purchase.  So an individual purchasing a buy-to let property will not pay the additional 3% if this is the only property that they own. Companies on the other hand will be subject to the higher rate of SDLT on all purchases of residential dwellings.

Married couples and civil partners are looked at jointly.  Thus if one of the couple already has a property, a subsequent purchase of a residential property by the other partner would be subject to the additional 3%, even if it was to be their main residence.

Where there are joint purchasers of a property, if any one of those purchasers has another residential property, the whole of the purchase price will be subject to the higher charge. This can catch out parents who wish to help their children onto the property ladder by taking out a joint mortgage. The mortgagor will usually require all parties to the mortgage to have their names on the title deeds. This would then make the whole of the purchase price subject to the additional rate.

Sometimes a property being purchased may contain two or more separate dwellings, for example a house with a granny annexe, or a flat over the garage.  Where the principal dwelling is worth at least two thirds of the transaction value, the tests for the higher rate of SDLT can be applied as if only one dwelling was purchased.

SDLT is normally only charged on properties costing over £125,000, but the 3% surcharge applies to all proceeds.  A property costing less that £40,000 is exempt but if a second residential property is purchased for £40,001, the whole proceeds would be chargeable at 3%.

If you would like more information on this topic – or you have any other questions regarding property taxation, please contact us by emailing action@wrightvigar.co.uk or calling 0845 880 5678 the Tax Team at Wright Vigar would be delighted to be able to help you.