Stamp Duty Land Tax (SDLT) is charged at a higher rate from 1 April 2016 on what is called an 'additional' home. Broadly that means a home that is not the one you live in.
The rates charged on each band in England Wales and Northern Ireland will be
SDLT1
|
SDLT2
|
|
Band
|
Rate
|
Rate
|
£1 to
£125,000
|
0%
|
3%
|
£125,001
to £250,000
|
2%
|
5%
|
£250,001
to £925,000
|
5%
|
8%
|
£925,001
to £1,500,000
|
10%
|
13%
|
Above
£1,500,000
|
12%
|
15%
|
SDLT1 is the tax when you the home you live in (main residence)
SDLT2 is the tax when you buy an additional home (not your main residence)
There are some properties that are exempt including caravans, mobile
homes, and houseboats. Homes sold for £40,000
or less are also exempt. But for homes over that price the 3% tax will apply
to the first £125,000 - there is no exempt band. Here are some examples.
SDLT2 applies to a home which is bought but which you do not
immediately live in as your main residence. So if you purchase a buy-to-let
property - including furnished holiday lets - or a second home for holidays or
weekends then SDLT2 will apply.
If you buy a home to live in but for some reason cannot or do not sell
your previous residence at the same time, SDLT2 will be charged. If you sell
the original residence within 36 months the extra tax - the difference between
SDLT2 and SDLT1 - can be refunded by HMRC. This rule and timetable applies even
if the new purchase is not fit for human habitation and has to be done up to
live in. But SDLT2 does not apply if the property purchased is not a residential
property at the time you buy it - for example a barn, a church, or an
industrial unit.
If you own the home you live in and also own a second home - a
holiday home or weekend retreat for example or a property you rent out - you will
not pay SDLT2 if you sell the home you live in and buy another to live in immediately. But you will be liable to SDLT2 if you sell your holiday home or rented property and buy another which is not your main residence. You will also be liable to SDLT2
if you buy another home to live in, move into it, but do not sell the home you left within thirty six months. That period normally runs from the day you bought the second home. But a concession means that if you bought your new main residence before the SDLT2 announcement was made on 25 November 2015 then the 36 months runs from that date . So you have until 26 November 2018 to sell your old main residence.
If a home is bought jointly and one buyer owns another main residence but the other does not then SDLT2 will apply to the whole purchase price. So for example if a parent who owns their own home helps a child with a property purchase that will trigger SDLT2 on the whole cost if the parent is registered as a joint owner. SDLT2 will apply to the whole of the purchase price not just the share of it owned by the person with another main residence.
If a home is bought jointly and one buyer owns another main residence but the other does not then SDLT2 will apply to the whole purchase price. So for example if a parent who owns their own home helps a child with a property purchase that will trigger SDLT2 on the whole cost if the parent is registered as a joint owner. SDLT2 will apply to the whole of the purchase price not just the share of it owned by the person with another main residence.
Main residence
The home you live in is called your 'main residence'. It is not like
Principle Private Residence for Capital Gains Tax where you can nominate a
property to be your PPR. Nor is it decided simply on days of occupation. It is
a matter of fact - where you and your family spend your time, where your work
is, where your children go to school, where you are registered to vote, where
correspondence from government or businesses is sent.
Couples who are joint owners of the home they share will pay SDLT2 if
they buy a second property and keep the first. But if one of them wholly owns
the home they share the rules are different depending on whether they are
married/civil partnered or not.
- If they are not married/CP'd
then the partner who is not an owner of the home they live in can buy a
separate home without paying SDLT2 as long as one partner will live there as their main residence.
- If they are married/CP'd then they will pay SDLT2 on a separate home they buy. But if they are separated and their relationship is ending this rule will not apply.
Landlords who rent
Someone who owns one or more homes which they rent out to tenants but lives in a home which they rent from someone else will pay SDLT2 if they then buy a home to live in. This odd anomaly means that a landlord who rents the home they live in pays SDLT2 when buying a main residence but one who owns the house they live in and buys another to replace it does not.
However, this rule may not apply to a landlord who rents but who has owned their main residence in the past. A landlord who lives in a home they own, then sells it, and temporarily rents their main residence has 36 months from selling the first to buy a replacement.
However, the three years runs from the day the new SDLT rules were announced on 25 November 2015. So as long as the landlord replaces his main residence by 26 November 2018 they will not have to pay SDLT2 on their new main residence. This concession means that a landlord who has ever owned their main residence but who now rents their main residence from another landlord has until 26 November 2018 to buy a main residence free of SDLT2.
Solicitors may be unaware of this loophole and charge SDLT2 on the home that is purchased by a renting landlord. If so, then the excess tax can then be recovered from HMRC.
Administration
SDLT2 applies from 1 April 2016. Completion must have happened on or before 31
March 2016 to avoid it. The one exception is if contracts were exchanged on or
before 25 November (Autumn Statement day) but completion is after 31 March then
SDLT2 will not apply. That may help with off-plan purchases made well in advance of the building being finished.
From 1 April purchasers have to fill in a declaration that they do or do not own another home. The conveyancer or solicitor will use that to decide which rate of SDLT applies.
From 1 April purchasers have to fill in a declaration that they do or do not own another home. The conveyancer or solicitor will use that to decide which rate of SDLT applies.
SDLT applies in England, Wales, and Northern Ireland. It does not apply
in Scotland which has its own property tax called Land & Buildings
Transaction Tax (LBTT). It also charges an extra 3% tax on each band
from 1 April 2016.
SDLT2 will apply equally to people who live outside England, Wales, and
Northern Ireland and buy property here. They will have to fill in the same
declaration on property ownership. A Scottish resident who bought a second home
in England would pay SDLT2 on the purchase. As would a resident of Dubai,
Germany, or Australia.
Caveat
This blogpost is based on detailed discussions with HM Treasury and the law as published and passed by Parliament. I believe it is correct. However, you should treat this blogpost as a guide only and take
professional advice before acting on the information contained in it. I accept no liability for any losses incurred by using it.
28 July 2016
Version 2.5