New rules were introduced 12 months ago to levy a 3% surcharge on the existing SDLT rates for additional residential property purchases (such as buy-to-let or holiday homes). As with the mortgage interest relief restrictions highlighted in the previous article, the government’s intention is to slow down the buy-to-let market and use the additional taxes raised to fund home ownership schemes. The latest statistics published by the government show that property purchases in general have reduced compared to the previous 12 months (other than a spike in March 2016 immediately prior to the new rules being introduced).
The rules broadly apply where, following the transaction, an individual purchaser owns two or more properties and has not replaced their main residence. For full details of the rules and applicable rates see our article in Spring 2016 Talking Tax.
The additional SDLT charge can be significant and in the past year we have come across a number of instances where the charge unexpectedly applies and results in a much higher bill than anticipated.
Mr X and Miss Y each own a property separately. Mr X lives in the property owned by Miss Y and has done so for a considerable amount of time, but has never been added to the title deeds or mortgage. Mr X and Miss Y would like to jointly purchase a new property to live in and Miss Y will sell the property they are currently living in at the same time.
As it stands, on acquiring the new property Mr X would own two properties. He would not be replacing his main residence as he does not have any rights or interest in Miss Y’s property. As a result, on acquiring the new property the SDLT 3% surcharge would apply to the full consideration.
How we can help
It is possible to carry out some planning in advance of the property purchase such that Mr X has an interest in Miss Y’s property, therefore, when purchasing the new property both he and Miss Y will be replacing their main residence. This SDLT saving could be significant depending on the value of the property, but as an indication on a £300,000 house, SDLT savings of £9,000 could be achieved.
If you are looking to purchase a new property and you, or anyone you are purchasing the property with, already own a residential property (whether it is in the UK or abroad) the SDLT surcharge could apply. In certain cases, there may be the opportunity to plan around the surcharge, but with complex rules the first step is to determine whether it will apply and factor that in to your purchase budget, if appropriate