Investment property or second home? The changes which could affect buyers ...

March 2016

In November 2015 the Government announced its intention to introduce higher Stamp Duty Land Tax (SDLT) rates which will affect tax-payers who are buying additional residential properties.

Does this apply to my purchase?

NO:-

  • If you are buying your first residential property you will not be affected by these changes. 
  • If you are moving from your current, main residence to a new property as part of a linked sale and purchase, you will not be affected by these changes.

YES:-

  • If you are buying a second or further residential property to add to your portfolio, this does affect you.   This applies even if your first residential property is located outside of the UK.
  • Also, if you are buying a new property as your main residence before you sell your existing main residence, you must pay the additional tax if you complete your purchase on or after 1st April.  You can reclaim the tax later if you sell your previous main residence within 18 months.

 When do the new rates come into force?

1st April 2016.  They will apply to all purchases that fall within the definition above that are completed on or after this date.

What if I exchange prior to 1 April 2016?

It will not make a difference.  You must have exchanged contract on or before 25 November 2015 for the rates not to apply.

 What are the new rates?

Band

Existing residential SDLT rate

New additional property SDLT rate

£0-£125,000

0%

3%

£125,000 - £250,000

2%

5%

£250,000 - £925,000

5%

8%

£925,000 - £1.5m

10%

13%

£1.5m +

12%

15%

 What if I buy with a partner?

Married couples and civil partners can only own one residential property between them.  So if your partner already owns a residential property, you will be subject to the higher SDLT rates even if you do not own property in your name.

In the case of unmarried couples, the current guidance seems to suggest that each partner will be entitled to own one property although this is yet to be confirmed.

Can I set up a Company to buy the property?

You can but it will not necessarily help you to avoid the higher rates of SDLT.  It is proposed that the first and any subsequent purchase of a residential property by a company or a collective investment vehicle will also be subject to the SDLT at the higher rates.  Purchases by partnerships will be treated in the same way.

 Consultation

The Government consultation on the new regime ran until 1 February 2016 and we are expecting the full details of the new scheme to be announced as part of the Budget on 16 March 2016.

 Exceptions

There are a few:-

  1. If you are simultaneously selling and buying a property to replace your main residence you will not be subject to the higher rates of SDLT – this is the case even if you also own one or more investment properties.
  2. If you are replacing your main residence but have not sold your current main residence you must pay SDLT at the higher rates but may apply for a refund as long as you sell your original main residence within 18 months.
  3. If you sell your main residence and replace it with a new main residence within 18 months you are not required to pay SDLT at the higher rate.
  4. If the property you are buying can be considered to be of mixed use it will not be subject to residential rates and instead will be dealt with under the commercial regime.
  5. Multiple Dwellings Relief (MDR) will still be available where 6 or more residential units are purchased in one transaction.

Please contact Eleanor King, Head of the Residential Conveyancing Department for further information. 

Eleanor King

Tel:  01296 318516

Em:  eleanork@pandcllp.co.uk