The introduction by the Government of the Higher Rates of SDLT has come as a blow to those looking to purchase further residential property in the UK. In broad terms, from April 2016 an SDLT surcharge of 3% will apply to a purchaser of UK residential property where that purchaser already owns another residential property anywhere in the world.

The rules are not without their quirks and complexities. Below we set out a few traps where the unwary can come unstuck as well as some tips for identifying possible reliefs from the Higher Rates:

Tips

  1. Replacement of Main Residence: Where a person purchases a dwelling to replace their main residence then there is a relief from the Higher Rates which applies regardless of the number of other properties that person owns. If the new residence is purchased before the old residence is sold then the Higher Rates will initially apply but the 3% surcharge can be claimed back by the purchaser after the previous main residence is sold provided this is done within 3 years.
  2. Granny Annexes: Where a purchaser buys a property which has a subsidiary dwelling on the same site then the Government has conceded that these two dwellings can be treated together as a single dwelling for the purposes of the Higher Rates. There are conditions attaching to the definition of "subsidiary dwelling".

Traps

  1. Joint Purchasers: Where there are joint purchasers of residential property and one of the purchasers already owns another residential property then (however small that interest) that person "taints" the purchase which then becomes fully within the scope of the 3% surcharge.
  2. Lease Extensions: The government has confirmed that where an individual owning two residential properties extends the lease to one of them then the position is that the Higher Rates apply to the premium for the lease extension even where it is the lease of their main residence being extended.
  3. Bare Trusts: Usually where a person holds a property as bare trustee for a beneficiary then under the rules we look through to the beneficiary's property holding position to ascertain whether the Higher Rates apply (i.e. if the beneficiary has another residential property then the Higher Rates apply regardless of the position of the legal holder). However this does not apply where the beneficiary is under 18 years of age. In this case you look to the property holding position of the child's parents.

Where the situation is not straightforward (including where any of the above apply) we recommend that legal advice is sought to analyse the position and help with any potential SDLT planning opportunities.