Insights

In the recent Autumn Statement the Chancellor stated it was the government’s intention to increase Stamp Duty (SDLT) by a 3% supplement from 1 April 2016 on second homes and rental properties. This blog explains the current proposals and how they will impact taxpayers.

The increase in SDLT is intended from 1 April 2016 and government has allowed only five weeks of consultation on the subject and this is due to end on 1 February 2016.

How widespread will the impact be?

The new 3% SDLT supplement will apply in any situation where the buyer either owns or partly owns two or more residential properties. This is based on ownership at the end of the day in which the transaction is completed and relates to properties in England, Wales and Northern Ireland. Scottish property is taxed independently and not affected currently, but a similar supplement is expected to be introduced.

When will the increased tax rate take effect?

All additional property sales completed on or after 1 April 2016 will be subject to the higher 3% SDLT supplement. Any completions before this date will be at the lower rate. It may be possible to avoid the new rate on transactions completed after 31 March 2016 provided that contracts were already exchanged before 25 November 2015 (i.e. before the policy was announced).

Are there any exceptions to the rule?

It should be stressed that this is not yet approved, but according to current proposals under consultation, there are four exceptions in which the 3% SDLT supplement would not be levied.

These are as follows:

• The property being purchased is less than £40,000;
• The property is not 100% residential and includes a commercial or retail unit e.g. flat above a shop, which is purchased in the same transaction
• The property purchase will replace the buyer’s main residence, which has already been sold;
• The property purchase is part of a bulk acquisition of 15 or more properties. This final exception could be restricted to corporate purchasers only, e.g. property purchased by a limited company.

How will the extra SDLT charge be applied?

The 3% supplement will be applied to the total value of the property and added to the normal rate of stamp duty payable for the value of the purchase. E.g. if a property is purchased for £350,000 the stamp duty payable would be £18,000 after 1 April 2016 as opposed to the current charge of £7,500.

This is based on the following breakdown:

Basic Charge:

(250,000 – 125,000) @ 2% = £2,500

(350,000 – 250,000) @ 5% = £5,000

Supplement:

350,000 @ 3% = £10,500

Total = £18,000

Are there any exceptions to the payment being required?

One of the topics under consultation considers the situation if the property purchased will be a main residence and the buyer’s original residence remains unsold. In these circumstances it is proposed that the 3% SDLT supplement should be paid, however provided the former residence is sold within 18 months, the extra supplement could be refunded. This is clearly controversial because in some cases it may take longer than 18 months to sell, particularly in the case of a high-end property.

There are other potential issues with this policy because the main residence qualification criteria for SDLT purposes will be the actual main residence based on the facts of occupation rather than an election which may have been made for tax purposes. Therefore the SDLT treatment and the tax treatment of a property may differ.

What opportunities exist for tax planning ?

Unmarried couples may potentially have a tax advantage if the proposed legislation goes ahead in its current form, because they may be permitted to each own a main residence before the supplement is applied. By way of contrast, married couples and civil partners will only be permitted to have one main residence between them. For tax purposes there are a number of advantages to being married or in a civil partnership – the opposite appears to be the case in this scenario.

Does this apply to overseas homes and buyers?

Properties located outside of England, Wales and Northern Ireland will be counted as main or additional homes. Likewise, if an overseas buyer already owns property and purchases additional homes in the UK, the supplement would then apply.

The supplement will also be added where a property is purchased as a furnished holiday let.

Are there any reductions for joint purchases involving dependents?

If a buyer is purchasing property for his or her children or taking a joint stake, the purchase will be regarded as an additional home and subject to the SDLT supplement (assuming the parents already own a home). There will be no opportunity to reduce the SDLT charge based on part ownership.

Will property owned by a company be exempt?

After the Autumn Statement, numerous news reports suggested that corporate owners of additional properties after 1 April 2016 would be exempt from the 3% supplement. This is not explicit in the consultation documentation, which suggests that the supplement rules will apply equally to companies and individually owned property. The only possible exception will be bulk property purchases of 15 or more in a single transaction by a company, but this is under consideration.

The government were late in releasing their proposals (28 December 2015) and have allowed until 1 February 2016 for comments on these changes.

Should you have any questions then please contact Simon Paterson sp@rjp.co.uk.