Stamp Duty Changes for Investors
Laura Unite discusses the impending changes to stamp duty land tax for investors
With effect from and including 1 April 2016 if you buy a second or an additional property, you will be liable to pay an additional amount in Stamp Duty Land Tax (SDLT) on the transaction. This is whether you already own a property (or even a part of a property) in the UK and/or abroad.
How substantial are the changes? The table below gives an overview, but it may be easier to consider the changes, as follows:-
Tom and Ben are interested in buying an investment flat in Watford which is on the market for £275,000. They already own their individual properties so this transaction would be subject to the extra tax. If they complete on or before 31 March 2016, they will pay £3,750 in SDLT, but if they complete on or after 1 April, they will pay £12,000.
Band Existing residential SDLT rates New SDLT rules for second homes
£0-£125k 0% 3%
£125k – £250k 2% 5%
£250k – £925k 5% 8%
£925k – £1.5m 10% 13%
£1.5m 12% 15%
There are a number of provisos and scenarios where the additional tax does or does not apply. Let me run through a few:-
1. Home Movers
Say Mr and Mrs Visana own a house in Chesham but plan to relocate to Amersham. Since this involves replacing their main residence, this is a straightforward swap and the current rules apply. But if they complete on their Amersham purchase before the Chesham house is sold, they will now own two properties and will have to pay the extra tax. Not all is lost though as provided they sell their Chesham house within 18 months of completion of their purchase they can claim back the extra tax paid.
2. Home Movers with Rented Property
If the Visanas owned a portfolio of flats that they rent out, and still wish to move from Chesham to Amersham the current rules will apply because there is no additional property being purchased.
3. Rent out the Old, in with the New
If the Visanas rented out their house in Chesham and bought a main residence in Amersham, they would be affected by the extra tax because the newly bought Amersham house is an additional property, regardless of the fact that it will be their main residence.
Matthew and Ayesha are married and they live in a house owned solely by Ayesha. If they wanted to continue living in their house and also wished to buy a flat to rent out, they would not be able to avoid paying the additional tax by looking to buy the flat in Matthew’s name only. That is because married couples or those in a civil partnership will be treated as one unit. It is unclear at the moment about what happens if Matthew and Ayesha were merely cohabitees living in Ayesha’s house and they wanted to buy a rental flat in Matthew’s name. We expect such a situation to be clarified in due course.
5. First Property is Rented
Lisa owns a flat in Fulham that she rents out, but she is living with her parents. She wants to buy a flat for herself to live in, while keeping the Fulham flat rented. Although the new flat will be her main residence, as with the Visanas above, the main residence is an additional property and, therefore, subject to the extra tax. Lisa would have to sell her Fulham flat within 18 months of her purchase to be entitled to recover the additional tax paid.
6. “Bank of Mum and Dad”
Rather than parents joining their children in the purchase of a property for the children to live in, and because they would be liable to pay the extra tax it may be advisable to consider gifting the children the money towards their deposits (although that in itself has its own tax implications and the parents would be advised to consider ways of protecting the contribution/s they make).
7. £40,000 Threshold
The extra 3% tax applies only to second homes purchases for more than £40,000.
There seems to have been a lack of clarity as to whether both the exchange and completion must take place before 1 April 2016 in order to be unaffected by the changes. This is the case unless contracts were exchanged in November 2015 before the changes were announced. In such situations the purchaser will not have to pay the additional SDLT even if they complete after 1 April.