Stamp Duty Land Tax - changes to purchases of additional property from 1 April 2016

Under the current Stamp Duty Land Tax (“SDLT”) rules, upon the purchase of residential property no regard is had as to whether the purchaser is an existing property owner for the purposes of calculating the SDLT payable. However, following the recent Budget announcement this is all set to change. From 1 April 2016, any purchase of additional residential property (i.e. in addition to the purchaser’s main place of residence) will now attract a higher rate of SDLT.

When considering the SDLT payable on a transaction, the first point to note is that for a purchaser who does not currently own property (e.g. a first time buyer), or is selling their current main property and purchasing a replacement main property, the SDLT charged will be in accordance with existing rates.  The transactions that will fall foul of the new higher rates are those in which additional residential property is being purchased that will not become the purchaser’s main residence, but is being kept either for investment/‘buy-to-let’ purposes, as a holiday home, or for a family member. 

SDLT: how it is calculated.

SDLT is charged on the basis of property price, based on a tiered system. 

Property                    Existing residential           New additional

value band                   SDLT rates                   property SDLT rates

£0 - £125k                    0%                                   3%

£125k - £250k               2%                                   5%

£250k - £925k               5%                                   8%

£925k - £1.5m              10%                                 13%

£1.5m +                       12%                                 15%

Therefore, under current rates a purchase of a second property at £150,000.00 would attract SDLT of £500.00; whereas under the new rates from 1 April 2016, this increases to £5,000.00.

SDLT: will the changes affect me?

If you are buying your first property: no, you will pay SDLT at the existing residential rates.

If you currently own a property that is your main residence, and are selling this property and purchasing a new property that will replace this main residence: no, you will pay SDLT at the existing residential rates.

If you own a property, and are purchasing a second residential property that will not be your main residence: yes, you will have to pay additional SDLT under the new rules.

If you own a property and purchase a second residential property, but within 18 months of this purchase you sell your original property and move into the second property as your main residence: whilst the higher rates of SDLT will apply, you will be able to apply for re-imbursement of the tax paid, when the sale of your original property completes.

If you are purchasing residential property for under £40,000.00: regardless of how many properties you own, this transaction will not incur SDLT.

If your spouse/civil partner owns a property, but you do not: for the purposes of the new SDLT regulations, married couples/ civil partners are treated as one taxable ‘unit’.  Therefore, SDLT will be payable in accordance with the new regulations.

If you wish to buy a property for another person to live in, but you already own a property: if the property you are seeking to acquire is to be held (either wholly or partly) in your name, the purchase of this second property will be subject to the higher rate SDLT.  However, you may wish to consider the second property being held in the name of the person for whom it is purchased, as if they own no other property this will be subject to the lower rate of SDLT.

If you require legal advice on this new taxation system and how it may affect you, contact one of our Private Client department at Hewitt & Gilpin by calling 028 90 573573.