It’s difficult to argue with the concept of paying Stamp Duty Land Tax (SDLT) on property that we buy bearing in mind that we’re quite used to paying the government an extra 20% on anything else that we buy but the 2015 Autumn Statement and Spending Review did its best to turn a complicated tax into an unreasonable one as well. The headline is that in order to reduce the number of buy-to-let properties ratchetting up house prices, the Chancellor announced that an additional stamp duty land tax surcharge of 3% would apply on the purchase of second residential properties, including second homes and buy-to-let properties. The Government has now released its proposals for implementation for consultation with the consultation period ending on 1 February 2016, barely 5 weeks from the date the proposals for implementation were released leading one to the conclusion that the consultation is very much a sham.
Assuming that no changes are made as a result of the consultation, the SDLT rates for residential properties, for completions taking place from 1 April 2016, will be as follows:
Click here to view the table.
As is the current system this will apply in slices so that each part of the consideration will be charged to SDLT at the relevant rate.
While this looks fairly straight-forward (if somewhat draconian, depending on your point of view), the proposals for implementation reveal a complicated tax which will have a number of unintended consequences, hurting more than just those presumed to be the government’s targets:
- If you already own a residential property, either in your sole name, or jointly, whether in the UK or otherwise, the purchase of an additional residential property in England, Wales or Northern Ireland will attract the higher rates of SDLT. To prevent avoidance of the higher rates this will apply to individuals, partnerships and companies too.
- If you are beneficially entitled to a property under a trust, you will be classed as an owner of the property for SDLT purposes. You will not pay SDLT on a property you inherit but the inherited property will be relevant if you then go on to buy your own property.
- A husband or wife who wants to purchase a second property will pay the higher rates of SDLT if they are already a joint owner of the matrimonial home. It is unclear whether this will apply to people who happen to be living together or how it will be policed if it will.
- A first time buyer buying jointly with someone who already owns a propertymay have to pay the higher rates of SDLT.
- If you buy a new main residence before selling your old home, because for example you intend to refurbish or rebuild it, SDLT will be payable at the higher rate. You will be able to reclaim the additional SDLT if the old home is sold within 18 months but not it would seem if you decide to sell the new one.
There are a few exceptions to the new rules:
- An exemption from the higher rates will be available for substantial investors(currently this is proposed to apply to bulk purchases of 15 or more properties in a single transaction or to purchases by funds or corporates (but not individuals) with an existing portfolio of more than 15 properties.
- Existing multiple dwellings relief will continue in its current form so if purchaser acquires 6 or more residential properties in a single or linked transactions he will be able to calculate whether it is more beneficial to claim this relief or to pay SDLT on the basis of commercial rates.
- Where parents purchase a property jointly with one of their children (for mortgage purposes) SDLT will not be affected for the parents. However, new joint ownership arrangements entered into after 1 April 2016 will cause the higher rate of SDLT to apply to their children’s property.
- Property costing less than £40,000, caravans, mobile homes and houseboats will not count when considering whether an owner has more than one property.
The anti-avoidance provisions mean that:
- A purchaser will not be able to elect which property should be treated as their main residence; this will be decided wholly on facts and circumstances – how is not clear.
- The date for filing SDLT returns is to be reduced to just 14 days from the effective date of the transaction.
- The SDLT return will also be amended to provide additional boxes for purchasers to indicate that the property they are buying is an additional property.
Buy-to-let landlords will, without a doubt, be affected by these upcoming changes but so will any other owners of more than one property. Anyone who owns a holiday home or a second home because of their work circumstances (MPs and government ministers for example) will need to consider these changes, alongside the withdrawal of mortgage interest relief. It may be that it would be more tax efficient for a buy-to-let landlord to transfer properties to a company prior to the 1 April 2016. Our fact sheet and case study on buy-to let landlords will give you more information.
With confirmation of the final design being announced at the budget on 16 March 2016, and the first draft of this legislation expected to be published less than a week before the rules are due to come into effect, there are likely to be many grey areas which will need to be addressed by the Government at a later date.
The overall effect is likely to be to reduce the supply of rented properties thereby potentially making it harder and not easier to rent. Tourist areas could be adversely affected without making life any easier for local residents and sub-standard properties are less likely to be upgraded. But at least the “buying good, renting bad lobby” will feel pleased…