You may already be aware that in its Spending Review and Autumn Statement published in November 2015, the Government announced its plans, in certain circumstances, to introduce a higher rate of Stamp Duty Land Tax from the 1st April 2016.
These proposed changes were part of a consultation which ended on the 1st February 2016. Once the Government has considered all responses, it will confirm its final policy in the Budget on the 16th March 2016.
‘The higher rates of SDLT are part of the Government’s commitment to supporting home ownership. The higher rates will apply to most purchases of additional residential properties in England, Wales and Northern Ireland where, at the end of the day of the transaction, individual purchasers own two or more residential properties and are not replacing their main residence.
The higher rates will also generally apply to purchases of residential property by companies. The vast majority of transactions, such as first time buyers purchasing their first property or home owners moving from one main residence to another will be unaffected.’
The Government will treat married couples and civil partners living together as one unit. This means that property owned by either partner (and any minor children) will be relevant when determining if an additional property is being purchased or not.
Therefore, an individual buying a property may be liable for the higher rates if his or her spouse or civil partner has an existing residential property. If the spouse or civil partner then sells that residential property they may be able to claim a refund.
If the proposals as set out in the Autumn Statement are implemented, the higher rate will be 3% higher than the current SDLT rate (see chart below).
The higher rates will only apply to purchases of additional residential property which complete on or after 1 April 2016. If contracts were exchanged after 25 November 2015 then the higher rates will apply if the purchase is completed on or after 1 April 2016.
However, if contracts were exchanged on or before 25 November 2015 but not completed until on or after 1 April 2016, the higher rates will not apply.
Band Existing SDLT rates New SDLT rates
£0* - £125,000 0% 3%
£125,001 - £250,000 2% 5%
£250,001 - £925,000 5% 8%
£925,000 - £1,500,000 10% 13%
£1,500,000 + 12% 15%
*Transactions under £40,000 do not require a tax return to be filed with HMRC and are not subject to the higher rates.
The most common scenario where the higher rate will be charged is where there is a purchase of a buy-to-let or second home in addition to a main residence which completes after 1st April 2016.
An exception to this will be where the property being purchased is replacing the individual’s main residence.
Where the sale of a main residence has not completed at the time of the purchase, the higher rate will apply, although a refund of the additional SDLT can be claimed as long as the main residence is sold within 18 months.
What You Need To Do
To assist you with understanding and then confirming to us whether the higher rate may apply to your transaction we have included the flow chart below and we would also urge you to visit the GOV website.
Please note that we will act on information supplied by you and will submit the tax return on completion on your behalf acting as your agent. Our role as your agent is limited to helping you complete the form, submitting the form on your behalf and submitting the tax due (subject to receipt of the necessary funds to make the payment).
You should also note that SDLT is a Tax and as with any Tax the payment of it is the responsibility of the tax payer. Following submission of the SDLT Return, HMRC may investigate any matter. And if they feel that there has been an underpayment, they will be perfectly within their right to seek the shortfall from you together (if appropriate) with interest and fines.
Howells cannot be held responsible for any shortfalls or enquiries that may be raised and if you are in any doubt about your position we strongly recommend that you consider taking independent advice from your accountants prior to completing your purchase.
Please consider the flowchart below.
The proposed SDLT changes are complex and it is not possible to explain all possible scenarios in this letter. If you have any doubt at all about whether or not the proposed changes will affect you, or you do not fully understand the above or have any reason to believe the proposed changes will or may affect your transaction and a higher rate of SDLT will be payable, please let us know as soon as possible.
You will also find attached some examples. Please note these are for general as opposed to specific purposes and Howells cannot accept any responsibility for any errors or omissions. Each case is different and will depend upon individual circumstances.
Please click here for the Government consultation paper regarding the changes.
Please click here for the latest update on the stamp duty changes (April Budget).