The new 3% additional rate of SDLT applies from 1 April 2016 and was expected to apply to second homes and buy to let investments by individuals. It was however, announced in Finance Act 2016, that the extra charge will also apply to major investors and companies, so that the higher rate will apply on all purchases of residential property other than an individual’s main home.
There are some nuances and conflicting rules though and as with all new legislation, this is something to keep an eye on, as there are likely to be tweaks over the coming years.
Watch out if the property is to be jointly owned and one of the persons has a second home; the additional rate will apply to the value of the whole property. Also, be careful if an individual owns a rental property but has no owned main residence of their own; as they are not replacing their main or only residence, they will be subject to the additional rate. In comparison, when someone who owns their own residence and a buy-to-let, sells their main residence and purchases a new property, they are replacing their main residence and so does not pay the additional rate!
If you are replacing your main residence but have not sold your old residence before the new residence is purchased, you will still need to pay the additional rate, but then claim it back when the old residence is sold. This original main residence must be sold within three years of purchasing the new residence. This is slightly out of kilter with the Principal Main Residence rules for capital gains tax as you will only get PPR relief for the last 18months of ownership regardless of whether you are living there or not.
The additional rate applies to a dwelling or something that can be converted into a dwelling. If a chargeable person was to buy some land with no dwelling, no barn, no building, even if there is planning permission to build a dwelling, there is currently no additional rate of SDLT applied. If you buy a property “off-plan” though, this will carry the additional rate, should it apply.
Transactions under £40,000 do not require a tax return to be filed with HMRC and are not subject to the higher rates.
It is possible to avoid the additional 3% SDLT via the use of a life interest trust or a bare trust; however, it must be the case that the beneficiary does not have their own main residence.
If you are concerned or require advice on the tax consequences of buying or selling a property, or on the taxation of buy-to-lets or holiday lets, please contact us and we can advise accordingly.