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Budget 2016: It is confirmed that three is (not) the magic number for Buy to Let landlords and Stamp Duty Land Tax (SDLT)

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Who’s in  cross-hair?

As announced at the Autumn Statement 2015, will be a Stamp Duty Land Tax (SDLT) surcharge will soon apply to purchases of ‘additional’ residential properties. Therefore buy-to-let properties and second home are firmly in the crosshair of this new measure.

For the avoidance of doubt, these provisions will apply to all investors regardless of their residence.

The surcharge represents an additional 3% on each of the existing residential rates of SDLT and is positioned as one of five measures aimed at supporting home ownership. So those who are within the new tax can feel warm and fuzzy that they are helping others get on the property ladder.

These new rules were subject to a hasty consultation which closed on 1 February 2016. Legislation was published as part of the tax related documents in Budget 2016.

Overview

The 3% surcharge will apply to purchases of ‘additional residential properties’ in England, Wales and Northern Ireland.

For those entering into premature jubilation north of the border, it is worth pointing out that equivalent measures will apply to land and buildings transaction tax (LBTT) in Scotland.

A property is an ‘additional’ residential property quite simply where the purchaser already owns one or more residential properties and he is not replacing his previous main residence.

How the rates stack up

Below, we show how the new 3% SDLT surcharge will apply when set against the current rates for an individual acquiring a property:

Consideration paidCurrent residential SDLT ratesProposed rate when including surcharge
Below £40k0%0%
40k – £125k0%3%
£125k to £250k2%5%
£250k to £925k5%8%
£925k to £1.5m10%13%
Excess12%15%

 

Married couples and civil partners

The legislation acts to treat married couples and civil partners as a single purchaser unless they are separated under a court order or by a formal Deed of Separation.

So they may own one main residence between them at any one time for the purposes of the surcharge. Residential property owned by either partner will be relevant when determining if an additional residential property is being purchased or not.

Delay between selling a main residence and purchasing a new main residence

Of course, an individual may replace his or her main residence but there is a delay. For example, this might occur where:

  • A new main residence is purchased prior to the sale of a previous main residence; or
  • The main residence is sold, a buy-to-let property is retained, and then buys a new main residence.

In the first example, he will have to pay the surcharge. However, this will be refunded if he sells his old main residence within three years (note this is increased from the eighteen months in the Consultation Doc).

In the second, he will not have to pay the surcharge if he buys his new main residence within three years of the sale of the old main residence.

Overseas purchasers

When determining whether, at the end of the day of the purchase of a residential property, the purchaser owns two or more residential properties, a property owned anywhere in the world will count as an additional property.

As such, an overseas purchaser will need to apply the ‘main residence test’ to their overseas property; and, if applicable, they will need to replace their overseas main residence with a UK main residence to avoid the surcharge.

Purchase of multiple residential properties

Where the transaction includes the purchase of more than one residential property an SDLT relief – multiple dwellings relief (MDR) – may be in point.

Under MDR, the residential rates are applied to the average property price and then multiplied by the number of properties purchased. A minimum of 1% must be applied where the relief is claimed.

Where the transaction involves the purchase of 6 or more properties then the purchaser is afforded a choice as to whether he or she applies the non-residential rates of SDLT (note the new increased top rate for commercial purposes announced in the Budget) or the residential rates of SDLT with MDR applied.

It is proposed that this will continue. However, if the surcharge applies and MDR is claimed then the SDLT liability is calculated using the MDR rate plus the surcharge.

Large-scale investors

The Government had suggested that it would provide corporates and funds with an exemption where they already owned 15 or more residential properties.

However, the Government has decided against this in order not to distort the market.

Conclusion

It is clear that there is a clear policy against private landlords with a variety or measures, including the restrictions on the offset of mortgage interest relief, introduced over the last 12 months targeting budding Rigsby’.

Whether such legislative changes are the solution to the problems in the UK housing market remain to be seen.

 

If you are a property investor, or have such clients, and you want to discuss this change and others in detail then please let us know

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