10 things you need to know about the new Stamp Duty Land Tax surcharge
One of the headline-grabbers from the Chancellor’s Autumn Statement in November 2015 was the announcement that buyers of second homes and buy-to-let properties would have to pay an additional 3% Stamp Duty Land Tax (SDLT) from 1 April 2016. A HM Treasury consultation published on 28 December 2015 provides more detail on how this will work in practice.
Here are the ten things you need to know about the new SDLT surcharge:
1. If, following the purchase, an individual owns only one residential property, they will pay SDLT at the usual rates. This is the case whether they are buying the property to live in or to rent out. So the following transactions will not attract the surcharge:
a. A purchase by a first-time buyer of their first residential property
b. A typical conveyancing transaction, where a homeowner sells their only residential property and buys another one
c. The purchase of a buy-to-let property by a person who lives in rented accommodation and doesn’t own another residential property.
2. If, following the purchase, an individual owns two or more residential properties, they will pay a 3% surcharge on that purchase, unless:
a. The latest property is being purchased for less than £40,000
b. All their existing residential properties are each worth less than £40,000
c. The latest property will be replacing the buyer’s main residence
3. To decide how many residential properties the individual owns following the purchase:
a. Properties which the individual owns (whether solely or in joint names) are included;
b. Properties in which the individual has a beneficial interest under a trust will usually be included (depending on the type of trust)
c. Properties in other jurisdictions (and which were not themselves subject to SDLT on purchase) are included, so don’t overlook that villa on the Costa del Sol
d. Properties bought as furnished holiday lets are included
e. Caravans, mobile homes and houseboats are not included
4. The concept of ‘replacing a main residence’ will be obvious in the majority of cases, but will not always be straightforward:
a. If a person buys a new main residence but does not simultaneously dispose of their old main residence (perhaps they are in the fortunate position of being able to afford to complete their purchase without having to wait for their related sale to be ready), they must pay the surcharge. They can however claim a refund if their previous main residence is sold within the following 18 months.
b. It is sufficient if a new main residence is being purchased and the previous main residence was disposed of within the previous 18 months
c. If a person buys a new main residence but keeps their old one (perhaps to rent out), then they have not replaced their main residence and must pay the surcharge on their purchase
d. Whether a property is a person’s main residence will be a question of fact in each case. Unlike the position with Capital Gains Tax, it will not be open to the person to elect which property is their main residence.
5. Where the surcharge applies, SDLT will be charged at the following higher rates:
£0 – £125,000 3% instead of 0%
£125,000 – £250,000 5% instead of 2%
£250,000 – £925,000 8% instead of 5%
£925,000 – £1,500,000 13% instead of 10%
Over £1,500,000 15% instead of 12%
The implications of this include:
a. SDLT will be payable on purchases between £40,000 and £125,000 that would not otherwise be liable to SDLT;
b. By way of example, four times as much SDLT will be payable on the purchase of a residential property for £250,000 (£10,000 instead of the usual £2,500).
6. Where residential property is purchased by joint purchasers, the following rules will apply (unless a main residence is being replaced):
a. Married couples and civil partners are treated as one unit, so the surcharge will apply on a joint purchase where either party owns other residential property. Similarly, the surcharge cannot be avoided by holding one property in one name and acquiring another property in the name of the other;
b. In other cases (including acquisitions by partnerships), if any of the joint purchasers owns two or more residential properties following the purchase then the whole purchase price is subject to the surcharge, even if the other joint purchasers do not own any other residential property.
7. To remove the attractiveness of using corporate vehicles to avoid the higher rates, the surcharge will also apply to companies and collective investment vehicles purchasing their first residential property.
8. The surcharge will apply to purchases of multiple residential properties. Multiple Dwellings Relief will continue to be available for such transactions and it will remain open to the buyer to pay SDLT at non-residential rates on the bulk purchase of six or more residential properties.
9. The proposed exemption from the surcharge for ‘large-scale property investors’ is the only area where the consultation seems genuinely undecided. The government originally proposed that corporates and funds with an existing portfolio of at least 15 residential properties would pay SDLT at the usual rates, but they are now considering:
a. Basing the exemption on at least 15 residential properties being included in the purchase, rather than the size of the buyer’s existing portfolio
b. Extending the exemption to individuals who meet the criteria
10. The surcharge is being introduced to a tight timescale:
a. If you want to respond to the consultation, you’re just in time. The consultation can be found here and responses must be submitted by Monday 1 February 2016
b. The final detail of the scheme will be confirmed on Budget Day, 16 March 2016
c. The new scheme takes effect on 1 April 2016 (although the surcharge will not apply to contracts exchanged on or before 25 November 2015)
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