A Brief Guide To Stamp Duty Changes
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A Brief Guide To Stamp Duty Changes

In the latest Autumn Statement the Chancellor announced plans to introduce an extra 3% stamp duty charge for second homeowners and landlords on the whole price of a home they’re buying above £40,000. The new rate comes into effect on 1st April 2016. Any plans for exemptions for larger landlords, whether private or corporate, have been removed.  So anyone buying an additional property, for themselves or to rent out, will be liable for the 3% charge.  That includes homes under construction too. Details of some of the exemptions are outlined as answers to the following questions.

How to tell if the stamp duty surcharge will apply?

The higher rates will apply to the purchase of a property if conditions 1 to 4 are met:

1) The property is £40,000 or more

2) The property has a lease with more than 21 years to run from the date of purchase

3) The purchaser owns an interest in another dwelling which has a market value of +£40,000 and has a lease of more than 21 years

4) The property being purchased is not replacing the purchaser’s only or main residence

Why has the Chancellor introduced the stamp duty surcharge?
The Chancellor is introducing these changes to boost first time buyers’ competitiveness by increasing the price some investors will have to pay. He is also likely to be concerned about individuals’ investments becoming overexposed to residential property and hence vulnerable to housing market cycles.  This is particularly important now that cash can be released from pensions.

How will this tax work?
Anyone owning more than one home, including landlords, will have to pay 3% extra stamp duty on the whole price of the home they’re buying over £40,000 if they do not qualify  for an exemption. That means that for the average flat, costing £179,800 a landlord will now pay £6,491 in stamp duty, £5,400 more than the current £1,644. Given the way the extra charge is implemented there is likely to be a behavioural impact on landlords.

Table 1: Difference between current stamp duty and new stamp duty for second homeowners

Purchase Price

Old Stamp Duty/Main Residence

Additional 3% for second homeowners

Difference

£125,000

£ -

£3,750

£3,750

£250,000

£2,500

£10,000

£7,500

£500,000

£15,000

£30,000

£15,000

£750,000

£27,500

£50,000

£22,500

£1,000,000

£43,750

£73,750

£30,000

£2,000,000

£153,750

£213,750

£60,000

£5,000,000

£513,750

£663,750

£150,000

 

Which type of properties will be exempt?
Non-residential property such as commercial, mixed use property and agricultural land will be exempt from the additional tax. Other exempt types of property include house boats, mobile homes, caravans and homes bought for less than £40,000. This means that if a commercial property is converted into a residential property afterwards, the extra tax will not have to be paid. 

When does the new tax come into force?
The new rate will come into effect for properties that complete on or after the 1st April 2016.
The additional tax will not apply if a property completes on or after 1st April 2016, but contracts were exchanged before the announcement of the new policy on 25th November 2015.
The additional tax will apply if contracts were exchanged after the 25th November 2015 and the property completes on or after 1st April 2016.

What if I buy my next home before selling my current main home?The higher rates will not apply if the sale of the old home and completion of the new one take place on the same day. If there is a gap, the higher charge will apply as the purchaser owns two or more properties. But, if the original residence is sold within 36 months, the stamp duty charge can be reclaimed.

For example, if a buyer purchases a new main residence but their chain falls through on the property they are selling, they will be liable to pay the higher rate. However, if they sell their previous main residence within 3 years of the purchase of the new one, they will be able to claim a refund.

What if I am buying a house for a family member?
The higher rate will not apply providing the new property is held solely in the name of another family member and it is their only home. Married couples and civil partnerships are considered to be one unit and can only own one property. Higher stamp duty rates will apply to any additional property held in either of their names. Unmarried couples will be able to own two homes between them without paying the additional tax providing they are each designated as their main residence. 

What if I’m based abroad?
If you own a property abroad and are purchasing a home here without selling the overseas property, the higher rate will apply. The government plan to treat additional properties located abroad as if they were located here. 

What if I purchase more than one property in a single transaction?If you purchase between 2 and 5 properties in a single transaction, multiple dwellings relief can be claimed, but the higher rates will apply. If you purchase 6 or more properties in a single transaction, you can choose between paying non-residential rates of SDLT or multiple dwellings relief with the extra stamp duty applied.

For example, a company purchases a block of 10 flats for £1,000,000

1) Multiple Dwellings Relief = £30,000. (Average price of £100,000 x 3% x 10)

2) Non-residential rates of SDLT = £39,500. [(£150,000 x 0%) + (£100,000 x 2%) + (£750,000 x 5%)]

What if I buy a second property as a company?
A company purchasing a residential property, even if it’s their only residential property, will be subject to the higher rate of SDLT.

What if I have a share in a limited company that owns a rental property?
Shareholdings in a company that own residential property will not be counted when determining whether an individual is purchasing an additional property.

What if I am a property developer who purchases properties, refurbishes them and then sells them?
There is no exemption available for property developers, therefore they are liable to pay the higher rate of SDLT and are not able to claim a refund even if the property is sold within three years.

For further details, the consultation can be found here

Read our December '15 issue of Market Insight to see our take on how Stamp Duty changes will impact buy-to-let landlords

 

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