Get free updates - subscribe to our monthly newsletter Subscribe
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
Plots of land
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.
If you like this article and would like our FREE updates sent straight to your inbox then subscribe to our monthly newsletterSubscribe
All content © 2015 Armstrong Watson. All Rights Reserved. Website by Simon Pighills.
Armstrong Watson LLP is a limited liability partnership registered in England and Wales, number OC415608. The registered office is 15 Victoria Place, Carlisle, CA1 1EW where a list of members is kept. Armstrong Watson LLP is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. Unless otherwise indicated, either expressly or by the context, we use the word “partner” to describe a member of Armstrong Watson LLP or an employee of Armstrong Watson LLP in their capacity as such.
Armstrong Watson Audit Limited is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Registered as a limited company in England and Wales, number 8800970. The registered office is 15 Victoria Place, Carlisle, CA1 1EW.
Armstrong Watson Financial Planning Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 542122. Registered as a limited company in England and Wales, number 7208672. The registered office is 15 Victoria Place, Carlisle, CA1 1EW. Armstrong Watson Financial Planning & Wealth Management is a trading style of Armstrong Watson Financial Planning Limited.
Armstrong Watson Trustees Limited is a limited company registered in England and Wales, number 84495656. The registered office is 15 Victoria Place, Carlisle, CA1 1EW.