In the Autumn Statement last month, the Government proposed that purchases of additional residential properties in England, Wales and Northern Ireland should be subject to an extra 3% Stamp Duty Land Tax (SDLT) on top of the standard SDLT rates. All types of residential property will be caught – second residences, buy-to-lets or furnished holiday lets – unless worth under £40,000.
The key test of whether the new rules will apply is this. If, at the end of a day in which an individual purchases a residential property, that individual owns two or more residential properties and the purchase was not replacing their main residence, the additional 3% SDLT will be due. The main exception to this (for home-owners) is if the individual was purchasing a main residence and can demonstrate that a previous main residence was sold within 18 months of the purchase.
How might the proposed changes affect individuals?
It is hard to see how the proposals will not have an impact on the operation of the UK property market, but by how much is unclear. What does seem clear is that it’s time to get your skates on if you plan to purchase another residence this year. You must have completed by 1 April 2016 to avoid the new rules applying to you.
- Home movers: Anyone wishing to replace their existing main residence with another, but who cannot sell their existing main residence at the same time as purchasing their new one, will pay the additional 3%. However, the additional 3% can be reclaimed if the old residence is sold within 18 months of the purchase.
- Married couples/civil partners: If either already owns a property before buying a joint residential property together, the higher rates will apply. Residential property owned by an individual’s spouse (or a minor child) is taken into account. The changes will also impact on divorcing couples as, until they are legally separated, they will continue to be treated as a single unit for the purposes of these rules.
- Parents helping their children onto the property ladder: If a mortgage is involved and the lender insists that the property is jointly purchased by parent and child, where the parent already has his own residence, the additional 3% will be payable. Alternatives (loans/guarantees?) will have to be considered.
- Trust beneficiaries: Life tenants of interest in possession trusts/IPDI will trusts whose assets include residential property will have that property count as their residence for the purpose of these new rules. Purchase by the life tenant of residential property in their personal capacity will attract the additional 3% rate.
- Non-doms: Residential properties outside the UK count, so non-doms wishing to purchase residential property in the UK will pay the additional 3% if they also have a residential property abroad. Another blow for non-doms.
To prevent individuals purchasing through companies to circumvent the rules, it is proposed that the first purchase of a residential property by a company will be subject to the additional 3% SDLT. Bulk purchases of 15 or more properties in a single transaction may be made exempt to encourage large scale property development.
Further details, including examples of how the new rules might work, are set out in the 28 December 2015 consultation. The consultation closes on 1 February, which leaves a very narrow window before draft legislation is published shortly after this year’s Budget, on 16 March 2016. The changes are due to come into effect on 1 April 2016.