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As part of the government’s Five Point Plan for Housing higher rates of Stamp Duty Land Tax (SDLT) have been introduced for the purchase of additional residential property with effect from April 2016.

As part of the government’s Five Point Plan for Housing higher rates of Stamp Duty Land Tax (SDLT) have been introduced for the purchase of additional residential property with effect from April 2016.

How does it apply?

The increase is 3% on top of existing SDLT rates for all tiers so in effect it will apply to the entire cost of the property. The rates are as follows:

Band (£)	Existing SDLT rates	Additional SDLT Rate
0-125,000	0%	3%
125,000 – 250,000	2%	5%
250,000 – 925,000	5%	8%
925,000 – 1,500,000	10%	13%
1,500,000+	12%	15%

For example, if a property was acquired for £350,000 in March 2016 SDLT of £7,500 would have been payable. Under the new rules, if the same property was acquired in June 2016 the SDLT payable would increase to £18,000, an increase of £10,500.

What does it apply to?

The new rates will apply to the acquisition of any additional residential property where the following conditions are met:

• The new property costs £40,000 or higher
• The buyer already owns a residential property or a share in a residential property worth £40,000 or more. Properties outside the UK are taken into account.
• The property is not replacing the buyer’s only or main residence.
• The rate can also apply to any off plan purchases of residential property where contracts have been substantially performed and construction has not yet commenced.

Therefore, anyone who already owns a property and acquires an additional property will be caught by the new rules.

If a developer acquires a site on which construction of residential property has begun then the additional SDLT rates can also apply as the land will be classified as residential rather than commercial.

Exception to the rule

There is an exception if the buyer has sold their main residence and is acquiring a new property to replace their previous residence. In such cases, even if the buyer owns another property such as a holiday home or buy to let the purchase of the new property would not be subject to the new higher rates of SDLT.

If for any reason there is a delay with a sale and the new property is acquired before the buyer’s previous main residence has been sold, then the new higher rates of SDLT will apply as the buyer will be considered to own two properties. However, provided the old main residence is sold within 36 months of the purchase of the new main residence it is possible to apply to HMRC for a refund of the additional SDLT.

The refund must be claimed within 3 months of the sale of the previous main residence or within 12 months of the filing date of the return, whichever is the later.

Joint purchasers

Where buyers are acquiring a property jointly, the new higher rates will apply if either party meets the conditions noted above and already owns a residential property.

In the case of buyers who are married or in a civil partnership the higher rates will apply if the individual’s spouse or civil partner already owns a property.

Companies

The additional rates will also apply to the acquisition of residential properties by companies where the property is valued at £40,000 or more.

Multiple Dwellings Relief

In cases where more than 2 properties are being acquired in the same transaction, it is possible for Multiple Dwellings Relief to be claimed. With this relief, the SDLT charged is based on the average value of each property rather than the total amount paid for all the properties.

For example, if an individual is buying 7 houses costing £2.1m the average value of a house is £300,000. The SDLT based on an average price of a house would be £14,000. Therefore, the total SDLT payable for all 7 houses would be £98,000.

For further information or advice, contact leona.leonard@cavanaghkelly.com