On 1st April 2016 new government rules were introduced meaning some purchases of residential property will be subject to a higher rate of Stamp Duty Land Tax (SDLT). This is part of the government’s 5 Point Plan for housing, with the aim of helping first time buyers to get on the property ladder.
To help you understand the new rules and to see if you could be affected, we’ve put together a guide to explain the changes.
What is SDLT?
Stamp Duty Land Tax (SDLT) is a tax that the buyer pays when they purchase a property for over £125,000. The amount paid is calculated on a sliding scale which goes up in line with the value of the property.
As of April 1st 2016, if you already own a home and buy an additional residential property, an extra 3% must be added to the amount of SDLT due to the government. This discourages people from buying lots of residential properties e.g. as buy-to-let investments.
The additional tax only applies if you own more than one residential property at one time. If you are selling your home and buying a new one, you will only own one residential property at a time and so will only be required to pay the lower rate SDLT on your purchase.
The house buying procedure isn’t always as simple as that, however. If you complete on your new home before the old one sells, you will own two residential properties at once. In this situation you’d be required to pay the extra 3% SDLT in line with the new rules. The good news is that if the old property then sells within the next three years, you can claim that extra tax back.
Moving home while owning other property
An important point is that the higher tax is not applicable if you are buying your own main residence. You can, however, only own one main residence at once.
Things get a bit more complicated if you own multiple properties, but you still only pay standard SDLT if you’re buying your main residence. If you sell your own home and buy a new one, you will only pay the standard SDLT on your purchase, even if you own other residential property as well e.g. buy-to-let houses.
Married couples and civil partners
Married couples and civil partners are treated as single units. If you’re a couple, you can only call one property your main residence. Any other residential property bought, even if it’s in only one of your names, will be subject to the higher level SDLT. The same rules apply for friends buying a house together.
Things can get complicated if a relationship breaks down and partners separate. In this situation it’s important to seek legal advice and make sure you pay all the tax owed, or claim back money that’s yours.
Parents helping children to buy
It’s not uncommon these days for parents to help their children buy their first house. If you, the parent, are already a homeowner, this purchase could be subject to the higher rate tax in some situations; it depends on whose name is on the deed.
If you buy a house for your child to live in, you will have to pay the higher rate SDLT on the purchase because you will own more than one residential property.
If you go into joint ownership with your child you will have to pay the higher rate tax even if it’s your child’s first property. As with the rules for married couples and civil partners, as a unit you already own a residential property and so subsequent properties are subject to greater tax.
However, if you give your child money for a deposit on their first property and it’s their name on the deed, not yours, the standard rate of SDLT is paid.
Inheriting a house
If you inherit a residential property, you don’t have to pay any SDLT on it. Inheriting a house can complicate things in other ways, though. The ownership of inherited property will be taken into account if you later want to buy another residential property and you may be charged higher rate SDLT on your new purchase.
If the inherited property is held in a trust or you inherit only a percentage, things can get quite complicated. It’s important to seek legal advice and make sure you pay the correct tax.
Property purchased by companies
Businesses haven’t been let off the hook when it comes to the higher rate SDLT. In fact, a company purchasing any residential property, even if it’s their first one, must pay the higher tax.
If you’re part way through the buying process
If you’re currently in the process of buying residential property in addition to your main home and will complete on or after 1st April 2016, you may have to pay the higher rate SDLT. It depends on when you exchanged contracts.
If you exchanged contracts before 25th November 2015, you will pay the standard SDLT. This is the case even if you don’t actually complete until after 1st April 2016.
If you exchanged after 25th November 2015 however, you will have to pay the higher rate SDLT if you complete after 1st April 2016.
The purchase of any new property can be complicated and confusing, particularly with the new SDLT rules. It’s a good idea to seek professional help from someone who can confidently guide you through the process. This will ensure you pay the correct tax owed and your purchase runs smoothly.
If you’re unclear on the new rules or need advice, get in touch with our friendly team today. We’d be happy to help you through the property buying process or answer any questions you may have.
Please note: we have created this document to point out the major changes to SDLT rules, correct at the time of writing. It does not replace professional legal advice for your individual circumstances.