Stamp Duty Land Tax on second homes

Angela Hesketh, Head of Residential Property at Lees Solicitors, discusses the new rate of Stamp Duty Land Tax on second homes.

Angel Hesketh Head of Residential Property

What is Stamp Duty Land Tax?

Stamp Duty Land Tax is the tax you must pay if you buy property or land which costs over a certain price in England, Wales and Northern Ireland (there is a different tax payable in Scotland). In 2015-16 the UK Government collected £7.3 billion taxes on residential sales.

What is the 3% Stamp Duty Land Tax (SDLT) surcharge?

The new rates apply to anyone in England and Wales buying properties other than their main residence by applying a higher rate of duty for any property over £40,000. The rates of SDLT are:-

  1. 3% instead of 0% on a property costing £40,000 up to £125,000
  2. 5% rather than 2% on properties costing £125,000-£250,000
  3. 8% rather than 5% on properties costing £250,000-£925,000
  4. 13% instead of 10% on properties costing £925,000-£1.5m
  5. 15% instead of 12% on properties over £1.5m

When did it kick in?

The higher rates took effect from 1st April 2016. The Government has pledged to use £60m of the additional revenue collected to help communities where the impact of second homes has been particularly severe.

What is a ‘Second Home’?

Basically any property that is not your main residence so it would include Buy-to-Let portfolios, holiday homes and properties parents purchase on behalf of their children.

How are the rules applied to spouses, civil partners and joint purchasers?

Generally the Government treats people falling within these categories as a single unit with the effect that homes owned by either partner are taken into account on the purchase of another property. The rules can be very complex but we can provide guidance as to whether your purchase is likely to be taxed at the higher rate of SDLT.

Who has to pay it?

Post-2016 anybody buying a second home, subject to very restricted exemptions, will be subject to the inflated tax rate.

The one saving grace is that if you are a Buy to Let investor or holiday home owner and you sell your own main residence and replace it with another it will not be classed as a second home and you will pay the normal lower rate of tax.

However, if you complete the purchase of your new home without selling your own home you will have to pay the higher rates but if you sell your old home within 36 months you can reclaim the difference in the tax.

What happens if a parent buys a home for their child?

If parents buy a property for their children and are named on the deeds while still owning a property they will pay the higher rate. Parents considering helping their children get on the property ladder should take professional advice to ensure they fully understand the SDLT implications.

What exemptions are there?

The main exemptions are:-

  1. Properties under £40,000-a rare find in today’s market
  2. Caravans, mobile homes and houseboats-these are exempt because the Government does not consider them to create the same issues for first time buyers as Buy-to-Lets and holiday homes
  3. Employer Provided Accommodation-if you live in work related accommodation which is owned by your employer you would be able to purchase a property without paying the higher rates
  4. Non-residential property-shops, offices and agricultural land for example

Where to seek professional advice

Please note that this article is only a brief summary of some of the consequences of the imposition of higher rates of Stamp Duty Land Tax.

Stamp Duty Land Tax has some complicated regulations so it is essential to get professional advice. If you have any queries please contact Lees Solicitors on 0800 387 927.

 

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