Stamp Duty Land Tax (SDLT) on additional properties

Proposals to bring in higher rates of stamp duty land tax (SDLT) on purchases of additional residential properties are expected to be finalised in time for the forthcoming Spring Budget on 16 March 2016.

SDLT is paid on the purchase of residential property in increasing portions of the property price above £125,000. Current rates are as follows:

– SDLT for a property with purchase price of up to £125,000 is currently 0%; the proposed additional properties rate in this band is 3%.
– SDLT on the next £125,000 of the purchase price is currently 2%; the proposed additional properties rate in this band is 5%.
– SDLT on the next £675,000 of the purchase price is currently 5%; the proposed additional properties rate in this band is 8%.
– SDLT on the next £575,000 of the purchase price is currently 10%; the proposed additional properties rate in this band is 13%.
– SDLT on the remaining amount of the purchase price (portion above £1.5m) is currently 12%; the proposed additional properties rate in this band is 15%.

The proposed higher rates will only apply to purchases of additional residential property which complete on or after 1 April 2016. If contracts are exchanged after 25 November 2015 then the higher rates will apply if the purchase is completed on or after 1 April 2016. However, if contracts were exchanged on or before 25 November 2015 but not completed until on or after 1 April 2016, the higher rates will not apply.

The higher rates will not apply if at the end of the day of the transaction an individual owns only one residential property, irrespective of the intended use of the property.

If at the end of the day of the transaction an individual purchaser owns two or more residential properties, whether the purchaser pays the higher rates or not will depend on whether they are replacing their main residence. If the purchaser has sold a previous main residence within 18 months before the day of the transaction and the transaction is a purchase of a new main residence, the purchaser will be considered to be replacing a main residence. Where an individual is replacing a main residence the higher rates of SDLT will not apply.

However, if the purchaser is not replacing a main residence (either because they have not sold a previous main residence within the last 18 months or the property being acquired is not a new main residence), the higher rates will apply.

Recognising that there may be certain circumstances where purchasers experience difficulties with conveyance transactions, there will be a refund mechanism for those who sell their previous main residence within 18 months of the purchase of the new main residence.

A potential problem may arise where two or more unmarried people own or purchase property jointly. The proposals currently state that if, at the end of the day of a transaction, any of the joint purchasers has two or more properties and is not replacing a main residence, the higher rates will apply to the entire consideration for the transaction. This is designed to provide simplicity and aligns with other areas of the tax system. However, as the purchased property may be a first property for one or more of the joint purchasers, the government is currently considering whether the current proposals will produce the fairest outcome.

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