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3 Is A Magic Number?

We look at the new proposed SDLT higher rates on the purchase of additional residential properties.

Unfortunately there is nothing magical about the new proposed 3% SDLT surcharge on the acquisition of a second residential property from 1 April 2016.

The Government is currently considering the responses to the consultation on the proposed new higher rate of SDLT. The final position will be announced in the Budget on 16 March 2016.  If there are no substantial changes to the details set out in the consultation the 3% surcharge will apply as set out below.

Property Value

Standard SDLT rate

SDLT rate on additional residential properties

£0 – 125,000

0%

3% (except for properties costing less than £40,000 on which the rate if 0%)

£125,001 - £250,000

2%

5%

£250,001 - £925,000

5%

8%

£925,001 - £1,500,000

10%

13%

Over £1,500,001

12%

15%

If you already own one residential property, either in your sole name or jointly whether in the UK or offshore the purchase of an additional residential property (including furnished holiday lets) in England, Wales or Northern Ireland will attract a higher rate of SDLT as above.  Married couples, civil partners, partners or joint purchasers may be caught be the higher rate even if only one of the couple of partners already owns one residential property or is buying such property separately.

If you are beneficially entitled to a property under a trust or have a life interest or interest in possession in the property you will be treated as owning that property for these purposes.  If you inherit a property you will not be required to pay the higher rate of SDLT but the property will be relevant if you wish to acquire an additional residential property. Purchases by trustees where beneficiaries have no interest in possession over the property will be liable to the higher rates.

To guard against avoidance risks it is proposed that the first purchase of a residential property by a company or collective investment scheme is subject to the higher rates of SDLT.

Exemptions

  1. If you have exchanged contracts on or before 25 November 2015 and complete on the purchase after 1 April 2016 the higher rate will not apply.
  2. If you are replacing your main residence, selling you old home to move in to a new home, you will not be subject to the higher rates. If you buy the new residence but do not sell your main residence you will be liable for the higher rates at the time of the purchase but will be entitled to a refund of the additional SDLT if you sell your old residence within 18 months of the purchase.
  3. If the property costs less than £40,000 no SDLT will be payable on the purchase.
  4. Charities and registered social landlords will be exempt from the higher rates.
  5. Multiple dwellings relief is still available and if you acquire over 6 residential properties this will still be classed as the acquisition of commercial property and not subject to the higher rates.
  6. The purchase of caravans, mobile homes and houseboats are excluded from the higher rates and will not be considered when determining if you are purchasing an additional property.

If you are an individual investor in residential property three is definitely not a magic number as the Government may introduce three new provisions which will have detrimental impact on your business. First is the higher SDLT rates set out above, the second is the removal of mortgage interest relief from 1 April 2017 and the third is the consultation on reducing the filing deadline for SDLT returns to 14 days. 

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

James Cashman

Associate