It was announced at last year’s Spending Review and Autumn Statement that higher rates of stamp duty land tax (SDLT) would be applied to purchases of “additional” residential properties. These higher rates are 3% above the current SDLT rates and apply to transactions that complete on or after 1 April 2016, unless contracts were exchanged before 26 November 2015 (and there has been no variation of the contract or assignment of the rights under it in the meantime). The draft legislation to implement these changes was made available in March’s budget. The table below shows the standard rates of SDLT together with the new, higher rates.

Click here to view the table.

The additional rates will apply, if, at the end of the day of the transaction, a purchaser has a major interest in two or more residential properties (anywhere in the world) and has not replaced their main residence. In this context, the main residence being disposed of must have been the purchaser’s only or main residence at some time during the three years immediately preceding the date of completion of the transaction. Where the purchaser has more than one residence, which of these will be their main residence will be a question of fact. It will not be subject to election, as with capital gains tax.

Companies will generally be subject to the higher rates on their first purchase of residential property. There are no special exemptions from the higher rates of SDLT for companies. However, the higher rates will not apply in circumstances where the company is subject to the 15% rate of SDLT. It was also confirmed that there will be no exemption for large scale investors, as had been originally proposed.

The flow chart below can be used to check if a purchase of a property by an individual will be subject to the higher rates.

Key points to note

  • If any co-owner already owns a residential property (anywhere in the world) the higher rates will apply to the whole consideration, even if this is a first purchase for the other co-owner. This means, for example, that a purchase by parent of a property jointly with a son or daughter where the parent already owns a property (anywhere in the world) will be subject to the higher rates, even though this is a first purchase for the son or daughter who intends to use the property as a main residence. This is regardless of the percentage of the parent’s beneficial interest in the property.
  • Spouses and civil partners are treated as a single unit for the purposes of the rules and are only entitled to one main residence between them. This means that if one spouse already owns a residential property and the other spouse is purchasing their own property, in their sole name, the higher rates will apply. There are special rules applicable following permanent breakdown of the relationship.
  • If a purchaser buys a new main residence before disposing of the existing one, he or she will need to pay the higher rates on the acquisition of the second property. However, as long as the existing main residence is sold within 36 months of the acquisition date of the second property, a refund of the additional SDLT can be claimed.
  • The higher rates will not apply to non–residential or mixed use properties.
  • Where a person inherits a “small” share (being 50% or less) in a single property and then purchases a second property within three years of the inheritance, the second property will not be counted as an additional property and so the higher rates will not apply.
  • Multiple Dwellings relief is still available if one or more dwelling is bought in the same (or in a linked) transaction. However, the additional 3% rate applies to increase the applicable rate of SDLT once the average chargeable consideration has been calculated.
  • Purchases by trustees are treated differently depending upon whether the trustee is a trustee of a bare trust, a trust with life or income interests or any other trust (including a discretionary trust). The higher rates will apply in many situations.
  • Purchases of residential land (effectively bare land) will not attract the higher rates unless the land forms part of the gardens or grounds of an existing dwelling.

As is clear from the above, there will be many cases where the applicability of the higher rates is not straightforward. This is particularly so where a purchaser already holds one or more property or if the property is to be acquired by trustees. Purchasers will need to seek early advice on the SDLT position to establish whether the higher rates will apply to their particular circumstances.