Stamp Duty Land Tax - 12 months on

We are now standing 12 months on from the introduction of the additional 3% rate of Stamp Duty Land Tax on purchases of additional residential properties.

So, letís review the practical effects this has had on transactions since it came into force.

Where we started

Following the Spring Budget 2016, the additional 3% stamp duty land tax rate came into force on purchases of additional residential properties from 1st April 2016.

The additional rate applies to purchases of any additional residential property with a value of £40,000 and over. It is payable on the full purchase price. It can also apply to transfers of equity where the consideration is £40,000 or over.

The reaction

The general consensus is that the higher rate has had a much broader effect than first envisaged.

In attempting to avoid loopholes it is evident that it has captured far more situations than intended and, consequently, it is generally viewed as very harsh.

For example, when purchasing property jointly, even if only one of the parties already owns a residential property, the higher rate of stamp duty will be applicable.

Joint purchases

In the further guidance notes issued by HMRC in November 2016, a number of scenarios were presented such as:

Question: I own a house which my husband and I live in as our main residence. My husband is planning to buy a flat to rent out Ė this will be in his name only. As we will then only own one property each I assume the higher rates will not apply to the purchase of the flat?

Answer: The higher rates will apply to the purchase of the flat. As a married couple, you will be treated as joint purchasers of the new property and therefore any other property owned by either of you will be taken into account when determining whether the higher rates apply. The purchase of the flat will therefore be classed as an additional residential property.

Question: My partner and I are in the process of buying a property jointly. This will be our main residence. I currently own another property which I rent out but my partner is a first-time buyer. Will we have to pay the higher rates of SDLT on the whole purchase price or just on the 50% that I am purchasing?

Answer: The higher rates will apply to the total purchase price as following the purchase you will own an interest in an additional residential property. For joint purchases the higher rates will apply if either of the purchasers own other residential property and there is no main residence replacement.

Refunds upon selling a previous main residence

The higher rate is not payable if you are replacing a previous main residence (i.e. selling your main residence and purchasing a new main residence on the same day). It is, however, applicable if you are purchasing a new main residence before selling your previous main residence.

HMRC will issue a refund of the higher rate if the previous main residence is sold within 3 years of purchasing the new main residence.

We have been able to recover successfully the additional payment on a number of occasions once our clients have sold their existing property.

The HMRC aims to process all repayments within 15 working days of receiving all the necessary information but, in reality, we have found that this is taking around 2 months from submitting the completed form for the refund to be received.

Further guidance

Since the initial publications in April 2016, HMRC have issued further guidance to give more clarity and detail.

In brief, with reference to inherited properties, if you inherit half or less of a property in the 3 years before making a purchase, and you donít already own an additional residential property, you wonít pay the higher rates on that purchase.

In respect of trusts, you will be treated as the owner of a property if you receive all the income from it and the proceeds from the sale even if you are not the legal owner.

The beneficiary of a bare trust (trusts where the beneficiary has the right to all of the capital and income of the trust at any time if they are over 18) will be treated as the purchaser of a property.

For further information, we refer you to the guidance notes issued by HMRC which provide extensive guidance on whether or not the higher rate is applicable:

We can help

Stamp Duty Land Tax is complex and, whether or not it is payable at the higher rate, is dependent on a number of circumstantial factors.

If you have any specific questions please contact us for more information.

This article is for general information purposes only. It does not constitute technical, financial, legal advice or any other type of professional advice and is no substitute for specific advice based on your individual circumstances. We do not accept responsibility or liability for any actions taken based on the information in this article. For more information, please click here.