Stamp Duty Land Tax

Stamp Duty Land Tax
Higher rates for purchases of additional residential properties

On 25 November 2015 the Government announced that it would introduce an additional 3% stamp duty land tax (SDLT) on purchases of additional residential properties completed after 31 March 2016. It was aimed in part at the growing buy to let market that was driving up property values making the purchase of a property more difficult for the first time owner occupier buyer. The detail of the implementation of the tax was not published until 16 March 2016 with the buying and selling of houses (many conveyancing chains started with a buy to let purchase) then in full flow. This volume of transactions continued until 31st March. What is the positon now?

The market appears to have quietened down but that was inevitable after the surge of transactions wanting to complete before the deadline. The market, however, remains active with a reasonable volume of transactions. The number of buy to let transactions has reduced considerable but some are still proceeding with the additional SDLT paid.

The practical change is identifying whether additional 3% SDLT is chargeable. The purchase, for more than £40,000, of a dwelling house by someone already owning and continuing to own their own home (i.e. purchasing an investment property or second home) is immediately recognisable as a transaction that is almost certainly going to be subject to the additional tax. It is the less obvious transactions that are going to cause concern and undoubtedly catch some people unaware.

A purchaser of a dwelling who owns an interest in another dwelling with a market value of more than £40,000 may find that the additional tax is payable. It is not uncommon for properties to be given by parents to children with the parents continuing to reside in the property. How such transactions are formulated can differ but particular care needs to be now taken that an existing arrangement doesn’t trigger the additional payment and new arrangements are conscious of this risk.

With joint purchasers, if one party has a relevant interest in another property, the whole transaction is potentially subject to additional 3% SDLT. For someone who is married or in a civil partnership, their spouse or partner will be treated as a joint purchaser, even if they are not party to the transaction, so particular care in this regard.

Inherited property has to be considered.  An interest inherited more than 3 years prior to the transaction is probably going to be regarded as an interest in another dwelling to potentially trigger additional 3% SDLT. If inherited within the previous 3 years, provided that the share is less than 50%, it will not be regarded as an interest in another dwelling.

Another common scenario that is now going to become more problematic is the family home following the separation of a couple. If one party moves out and looks to purchase their own home, having an interest in the former home is likely to result in additional 3% SDLT. That can be reclaimed if the former home is sold within 3 years but that may not happen if children are involved and the home is retained for their benefit. Transferring the former home into the sole name of the resident party probably isn’t going to avoid this if the departing party retains an interest.

The HMRC guidance note published 16 March 2016 can be viewed online. Anyone purchasing a property is going to have to consider them and the concern is that there are some traps that are less obvious.

The re-assurance is that, no matter how complicated someone’s finances are, if selling their own home and purchasing another home in its place, no additional tax is payable.