The 3% Stamp Duty Land Tax surcharge

We have published a few articles regarding landlords recently, as a lot of our clients own second properties, and the tax implications can be complex. These articles have talked in general terms, so we thought it prudent to discuss the 3% Stamp Duty Land Tax (“SDLT”) and Land Building Transaction Tax (“LBTT”) surcharge in a bit more detail.

Simply speaking, the Government have an agenda to make it easier for first time buyers to get on the property ladder; one of these ploys is to make life more difficult for landlords.

The surcharge is a 3% loading on existing residential property SDLT/LBTT rates. It is levied on anyone who is buying an additional residential property, this could mean a holiday home, buy to let, or in some circumstances a main residence you plan to live in. It took effect from 1 April 2016, so to avoid it you had to complete by 31 March 2016 (unless you had exchanged before 26 November 2015 or 27 January 2016 for SDLT and LBTT respectively).

The additional property rule is based on your worldwide homes too, so a chalet in the Alps or apartment in Paris might mean you get stung by the new rate.

There are some exceptions, homes less than £40,000 are exempt, as are caravans, mobile homes and houseboats. It will be interesting to see if there is a huge spike in the sales of houseboats!

The main exemption is that if the home you are buying replaces your main residence you will not be liable for the surcharge, even if you own additional homes at the time. Where the UK property being acquired replaces a main residence which hasn’t already been sold, as long as you sell the main residence in the next three years (or 18 months for LBTT) you can claim a refund of the 3% but it might cause a significant short-term cash flow disadvantage.

It is quite simple in monetary terms, if you buy a second property for £300,000 the extra SDLT will be a whopping £9,000.

As with all ‘simple’ sounding tax issues there is a myriad of complexity and anyone in the following scenarios should consider getting further advice:

  • Buying a property jointly with someone who already holds one

  • Property with a ‘granny annex’

  • Couples that have split

  • Buying in a limited company

  • Major property investor

  • Inherited property

  • Plots of land

  • Timeshares

It seems pretty clear that these rules will have a huge effect on the property market and I would have thought a lot of people will be dissuaded from buying additional residential properties. Of course this typically leads to further unintentional consequences, so it will be interesting to see how it all pans out.

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