What is it?
In Autumn 2015 the government announced their Five Point Plan, designed to target the housing crisis and help first time buyers. As part of this plan, the Chancellor introduced a higher rate of Stamp Duty Land Tax (“SDLT”) on second residential homes. The government have said they will use some of the additional tax raised to target areas of England suffering from a shortage of housing.
The higher rates will be 3% above the current SDLT rates and will take effect from 1st April 2016. As with the current SDLT, it will only affect properties over the value of £40,000.00 but it will hit both individuals and companies purchasing residential property. Inherited property, caravans, mobile homes and houseboat purchases will be excluded.
When does it start?
The higher rates will only apply to properties which complete on or after 1st April 2016. However if contracts were exchanged before 25th November 2015 and completion takes place after this date, higher rates will not apply.
Does it apply to me?
The Treasury has released a Consultation Paper which seeks to answer just this question. Although the details have yet to be finalised, the government have set out their proposals and asked for commentary. In summary, the higher rates will NOT apply if at the end of the transaction, you only own one residential property, irrespective of its use. So if you live in rented accommodation and you decide to sell your buy-to let in order to purchase another buy-to-let, you will not be affected.
Interestingly however the tax will not work retrospectively so if you own two homes and you sell your main residence to buy a new one, higher rates will not apply to you. If you want to sell your non-primary residence and purchase a new one, the higher rates will apply.
Additionally, the government will afford an 18 month period with which to sell your main address but this will mean you have to pay the higher tax and then claim it back. So if you buy a second property, you will have to cough up the extra money before you can claim it back. Similarly, if you own two properties, you have 18 months to buy a new residence after you sell your main residence.
How do HMRC decide what constitutes a primary residence?
The Treasury have said they will look at factors such as where you spend your time, if there are any children (and if so where they attend school), where the individual works etc.
What if I am married, can we circumvent the rules by buying one property each?
Sadly, no. Married couples and partners will be treated as one unit.
What if I want to help my children buy a property?
It will depend on the structure of the transaction and who becomes the registered proprietor; if you contribute money or act as guarantor on the mortgage then you will not be affected by the higher rate but if your name is on the title and you already own property then you will be.
What if I am an investor?
The Consultation is still ongoing, ending on the 1st February, with a view to publishing the final policy in the Budget on the 16th March. There are still some issues to be confirmed such as the treatment of large scale property investors and individual investors. It was proposed that corporates and trusts with a portfolio of more than 15 properties would be exempt but the Treasury are considering extending this to individual investors- watch this space.
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