As from 1 April 2016 the Government are increasing Stamp Duty Land Tax for homeowners who intend to purchase more than one property.
So what does this mean for you?
The increased rate of stamp duty will apply on property transactions which are completed after 1 April 2016 unless contracts were exchanged on or after 25 November 2015. However, the increased rate of stamp duty will only be payable on the purchase of a second property, the purpose for the second property is not relevant. The higher rates will only apply to additional residential properties purchased in England, Wales and Northern Ireland. The higher rate will be 3 percentage points above the current stamp duty rates and will be charged on the portion of the value of the property that falls into each band (see below diagram).
Overlap between the sale of a previous main residence and the purchase of a new main residence
If a buyer intends to sell their main residence to perhaps purchase a bigger main residence but you are in a long chain of buyers and sellers, there could be a situation where the seller of their property is insisting on completing the sale on a date which does not match the date of your buyer’s completion date. So what do you do, you have fallen in love with your new dream property? Either you accept that your purchase will fall through and it is back to the drawing board or you complete the purchase but accept a different completion date for the sale of your existing property. If you are only faced with a few days or weeks, this perhaps may not seem too drastic for you. However, be aware, you will be charged with the higher rate of stamp duty because in effect you will own two properties! However, if the completion of the sale of your existing home competes within 18 months then you would be entitled to a refund and the refund will be on the difference between the amount of stamp duty paid under the higher rates and the amount of stamp duty that would have been due under the normal residence rates. I doubt the Inland Revenue will be as quick refunding stamp duty than receiving it….just saying!
Delay between the sale of a previous main residence and the purchase of a new one
If you already own a property which you let out but you have recently sold your main residence and you are looking to purchase another main residence, then the higher rates will not apply providing you purchase a new main residence within 18 months of selling your previous main residence. Subject to certain exclusions as set out by the HMRC.
Married couples and civil partners
If you are married or in a civil partnership then you will both be treated as ‘one unit’ who lives together, therefore, you could not get away with avoiding the higher stamp duty rate if you purchased a second property.
Parents purchasing a property for their children to live in
If you are a parent and want to help your child get on the property ladder, traditionally, most parents were able to act as a guarantor on their child’s mortgage meaning that they were not an owner. However, there are very few lenders who will allow guarantor mortgages without the guarantor also being included on the title deeds as an owner. Therefore, if you cannot find a lender to provide a guarantor only mortgage, you will have to be included as an owner, which will mean you could be faced with increased stamp duty payment on purchase.
Foreign investors and people not domiciled in the UK will be treated in exactly the same way as residents in England, Wales and Northern Ireland. If buyers own another property anywhere else in the world and are purchasing an additional property in England, Wales or Northern Ireland, they will be charged under the new rates.
Some exclusions from higher rate stamp duty
- Caravans, mobile homes or houseboats
- Properties purchased under £40,000 whether additional residential properties
- Non-residential property purchases (commercial property such as shops, offices, or agricultural land or any other land not used as a residence)
The rates are as follows
|Property or lease premium or transfer value||Existing SDLT rate||New additional SDLT rate|
|Up to £125,000||Zero||3%|
|The next £125,000 (the portion from 125,001 to £250,000)||2%||5%|
|The next £675,000 (the portion from £250,001 to £925,000)||
|The next £575,000 (the portion from £925,001 to £1.5 million)||10%||13%|
|The remaining amount (the portion above £1.5 million)||12%||15%|
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.For advice regarding property purchases, please contact Paul Davies on 01329 232314 or by email email@example.com