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.
