Private Lives - New stamp duty land tax rules

Published: 04/04/2016

New rates of stamp duty land tax (SDLT) came into effect on 1 April 2016 and, in certain situations, add a 3% surcharge for purchases of additional residential properties. The table below sets out the proposed rates.

Band  Current rate Surcharge rate
£0-£125,000 0% 3%
£125,001 to £250,000 2% 5%
£250,001 to £925,000 5% 8%
£925,001 to £1,500,000 10% 13%
£1,500,001+ 12% 15%

The surcharge only applies to residential properties worth more than £40,000 where, in certain circumstances, an individual already owns or has an interest in other residential property. If a property is valued at more than £40,000 then the entire consideration is liable to SDLT. There are separate rates applicable to non-residential and mixed-use properties.

Trusts of land
Purchases by bare trustees will be treated as if made by the beneficial owner. Similarly, beneficiaries with a life interest or interest in possession under a trust owning residential property will also be treated as ‘owning’ residential property held by the trustees. The number of properties owned by the individual beneficiary will be used to determine whether or not the higher rates apply.

Interests in remainder or discretionary interests will not be treated as being held by the beneficiary so purchases by trustees, where beneficiaries have no interest in possession be liable to the higher rates. Nonetheless, the additional rates should not apply to either the purchase of an individual beneficiary’s residence (where no property is owned by the individual) or to the replacement of a beneficiary’s only or main residence.

The key test and its application
The key test for individuals is how many properties does an individual own or have an interest in at the end of the day on which the new property is acquired? If the answer is one then no matter the reason for the purchase the surcharge will not apply.

If, at the end of the day that the new residential property is acquired, the individual owns, or has an interest in, two or more residential properties then higher rates may apply. In each case, SDLT is paid on the property being purchased. Examples where the surcharge will apply include the following:

  • Deborah buys a new main residence but does not sell her existing main residence which she lets out instead.
  • James’ main residence is a property in which he has an interest as a beneficiary under an interest in possession trust. James buys a second home which will not replace his main residence.
When do the rules take effect from?
The surcharge applies to purchases of residential property completed on or after 1 April 2016 unless exchange of contracts took place before 25 November 2015.

Companies, couples and overseas property
Companies are liable to pay the surcharge whether or not they already own a residential property.

There are no saving graces for married couples or civil partners who are treated as one unit in assessing the SDLT liability. In practical terms, this means the higher rates apply to the full price if only one of the couple owns more than one property at the end of the day of the purchase in question.

Where property is purchased by more than one person (including partnerships) they will be caught if any of the co-purchasers owns or has an interest in other property.

Overseas residential properties will be taken into account when calculating whether someone owns more than one residential property at any given time.

Exemptions and claiming back SDLT
The SDLT surcharge can be reclaimed where the main residence is disposed of within 36 months of the purchase of the second property. In Deborah’s example above, if Deborah sells her previous main residence within 36 months of buying her new main residence, she can claim the surcharge back.

If a person disposed of their main residence before 25 November 2015 but retained a second property and ultimately purchases a new main residence, that person will not have to pay the surcharge provided that the purchase of the new main residence completes before 25 November 2018 or 36 months after the completion date of the sale of the original main residence if that is later.

Inherited property is not subject to SDLT but those who inherit may be caught later depending on their share in and use of the property and the timing of the inheritance.

Where a couple separates and the separation is likely to be permanent, the couple will not be treated as one unit. Therefore if one person remains in a jointly-owned main residence and the other person buys a new property without the main residence being disposed of, the surcharge will not apply.

Despite earlier proposals, there is no exemption from the surcharge for large scale investors.

Filing an SDLT return
Filing the SDLT return is the responsibility of the buyer. If a mistake is made and that mistake is careless or deliberate, penalties of up to 100% of the tax understated can apply, in addition to any other sanctions.

The content of this article is for general information only. For further information regarding stamp duty land tax, please contact Nicola Lebish. Law covered as at April 2016.

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