Second homes and buy-to-let properties

In the Autumn Statement 2015 the chancellor announced an increase in the rate of stamp duty land tax that will be paid from April 1 2016 on purchases of additional residential properties valued over £40,000, such as buy-to-let properties and second homes. Purchasers of such properties will pay an additional 3% stamp duty land tax above the rates that they would have paid under the existing rules. With the current top rate of stamp duty land tax for individuals acquiring UK residential property set at 12%, this will result in purchasers paying rates of up to 15% on affected properties when the new rules take effect.

The government intends to consult on the policy detail, including a possible exemption for corporates and funds owning more than 15 residential properties. However, it seems that companies that will not fall within this proposed exemption and that would normally be caught by the higher-rate stamp duty land tax (15%) in relation to a purchase of a higher-value UK residential property (more than £500,000) may also be caught by the new additional 3% charge, resulting in a total stamp duty land tax rate of 18% on such an acquisition. This would be the case unless such properties do not qualify as second homes or buy-to-let properties within the terms of the new rules.

If such companies fall within the existing higher-rate stamp duty land tax exemption for property purchased for use within a 'qualifying property rental business' (which will not necessarily apply to all properties bought to let), they will avoid the 15% rate, but will still pay the additional 3% on top of standard residential stamp duty land tax rates, in the same way as would an individual or a company acquiring property with a value of £500,000 or less.

It remains to be seen how the rules will apply in terms of determining (and evidencing) what is and is not a second home in situations where such a property is not bought to let, whether a purchaser is resident abroad or otherwise. In whatever way the rules apply, they will likely result in a significant additional acquisition cost for many wealthy foreign and UK individuals purchasing UK residential property on or after April 1 2016.

This comes on top of a number of significant recent and forthcoming changes to the taxation of UK residential property, particularly for foreign and non-UK domiciled purchasers. As such, anyone planning to invest in UK residential property should consider taking advice at an early opportunity.

Filing and payment

Purchasers have a window of 30 days following acquisition of a property to file and pay stamp duty land tax. In 2016 the government will consult on changes including a possible reduction in this period from 30 to 14 days, with a view to such changes coming into effect in 2017 or 2018.

Capital gains tax payment window

The chancellor also announced that, from April 2019, a payment on account of any capital gains tax due on the disposal of UK residential property will need to be made within 30 days of completion of the disposal (although this will not affect gains on properties which are not liable for capital gains tax due to Principal Private Residence Relief). The proposal mirrors rules already in place for non-residents disposing of UK residential property that already have to file and, in certain circumstances, pay any capital gains tax due within 30 days of a disposal. The government intends to publish draft legislation for consultation in 2016.

For further information on this topic please contact Daniel Ugur at Wragge Lawrence Graham & Co LLP by telephone (+44 20 7379 0000) or email (daniel.ugur@wragge-law.com). The Wragge Lawrence Graham & Co LLP website can be accessed at www.wragge-law.com.

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