Higher stamp duty land tax rates on purchases of additional residential properties: the current proposals

Posted: 06/01/2016

The Government announced in its Autumn Statement 2015 that 3% higher stamp duty land tax (SDLT) rates will apply to purchases of additional residences from 1 April 2016. HMRC has now commenced a consultation on how this increase will be applied. The consultation will run until 1 February 2016, with a view to producing final legislation by 16 March 2016 (Budget Day). 

The consultation sets out the basic intended structure of the increase and, although it is possible that this will change before everything is finalised, below are the current proposals, as far as they are known. 

• The extra 3% basically applies to a purchase of a residential property if, at the end of day on which the transaction takes place, the purchaser owns more than one residential property. It does not generally matter whether the purchaser lives in any of the properties. So, if Mr A owns a residence in which he does not live and buys a house to be his main residence (or vice versa), he will pay the extra 3%.
• However, if the acquisition replaces the purchaser’s main residence, the higher rates do not apply. That is, if Miss B owns two residences, lives in one and lets the other, she will not pay the higher rates should she sell her main residence and buy another house to be her main residence. But she would pay the extra 3% if she sold her let property and bought another property to be her main residence.
• The relief for replacing a main residence is only available if the new property is bought within 18 months of the old property being sold. If the old property is only sold after the new property is bought, the purchaser must initially pay the extra 3%, but can reclaim it provided the old property is sold within 18 months of the purchase of the new property.
• Unlike the position with capital gains tax, a purchaser cannot elect which of his or her residences is the “main” one. This is just a question of fact.
• The property interests of spouses and civil partners (and their minor children) are amalgamated for the purposes of this relief. So, spouses can only have one main residence and an acquisition of a second residence will attract the extra 3% charge. Unmarried couples can have one residential property each without attracting the 3% charge.
• The property interests of adult children are not amalgamated with their parents even if the purchase is funded by the parents and/or the parents guarantee the mortgage.
• The property interests of joint purchasers and partners in a partnership are amalgamated for the purposes of the relief. So, if any of the joint purchasers has two or more properties and is not replacing a main residence, the higher rates will apply to the entire consideration for the transaction.
• Foreign properties count towards a purchaser’s properties, so if Mr C owns a foreign residence and buys a UK residence he will pay the extra 3%. But if he owns a UK residence and buys a foreign residence there is no SDLT on the purchase (because SDLT only applies to UK properties). NB – UK for this purpose excludes Scotland, which has its own Land and Buildings Transactions Tax.
• The first purchase of a property by a company or collective investment vehicle will be charged at the higher rates. This stops purchasers setting up a company to buy a single property in order to avoid the 3% charge. Note that purchases by companies of residences are often subject to the higher 15% SDLT charge.
• No change is proposed to the definition of residential property. This means that, if any part of the property being purchased is not residential – eg it is agricultural – the residential rates of SDLT (including the extra 3% charge) will not apply. The maximum SDLT rate for such properties is 4%.
• Special rules apply to properties purchased by trusts.
• The new rates are as follows:

• The higher rates will apply to all contracts entered into on or after 26 November 2015 where completion takes place on or after 1 April 2016. 
• The higher rates will not generally apply to contracts which are substantially performed before 1 April 2016 or to contracts entered into before 26 November 2015 (except where the contract has been varied, assigned or sub-sold on or after 26 November 2015).

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