Government’s new proposals for a new SDLT charge poses huge areas of uncertainty for second home owners
and buy-to-let investors, with issues ranging from holiday homes to challenges for those that own property abroad,
At the 2015 Autumn Statement, the government announced a package of measures focussed on providing low cost home ownership for first time buyers. One of the measures was to introduce a higher rate of stamp duty land tax ("SDLT") applying to purchases of additional residential properties, such as buy-to-let properties and second homes.
The new charge will add 3% SDLT to the current rates for residential properties and will take effect from 1 April 2016. A consultation document regarding the new SDLT charge was published in late December 2015, with responses from interested parties required by 1 February 2016.
Whilst the exact application of the new SDLT will not be known until the 2016 Budget, the consultation paper outlines the proposals.
The objective may appear simple but the commentary in the consultation document has resulted in confusion for taxpayers and professional advisors and it is not always clear when the higher SDLT will apply.
Helpfully, we know for certain that the higher SDLT will not apply where the property transaction completes before 1 April 2016. We also know that the charge will not apply where the exchange of the property occurred before 26 November 2015, but completion is after 1 April 2016 – this will be particularly relevant for any ‘offplan’ purchases which do not complete until after 1 April 2016.
The main area of uncertainty regarding the higher SDLT relates to when someone is moving home. Does the higher SDLT charge apply if I can’t sell my previous home before purchasing my new property? What is the position if I have a holiday home abroad? What happens if I move to the UK with my work and I buy a property but I already have a property in my home country?
These are not uncommon situations and we hope the final rules are made clear so taxpayers and their lawyers (who will be responsible for completing the Land Transaction Return) pay the correct SDLT.
If either partner owns a property before acquiring a main residence, the purchase of the main residence will be subject to the higher SDLT.
Where someone is replacing their main residence, but there is an overlapping period where they own two properties (because they are unable to sell their previous home), the additional SDLT is initially payable, but will be refunded if the previous home is sold within 18 months. There will obviously be a cashflow disadvantage in this situation and individuals moving homes will need to consider how they will fund the additional SDLT.
Married couples (and those in a civil partnership) are only entitled to one main residence between them. If either partner owns a property before acquiring a main residence, the purchase of the main residence will be subject to the higher SDLT.
Overseas properties will count for the purposes of determining whether the additional SDLT is payable; therefore, individuals relocating to the UK and wanting to purchase a home could face the higher SDLT cost if they already own a property in their home country.
The effect of owning a holiday homes (either in the UK or abroad) is not completely clear in the consultationdocument. For example, if a person currently owns their main residence and a holiday home, but they want to sell their main residence and move elsewhere (keeping the holiday home), will the purchase of the new main residence be subject to the higher SDLT?
Intuitively, one would expect the higher SDLT to not apply in this situation as the person is replacing their main residence, but the comments in the consultation document are not clear.
At one part of the consultation, it is clear that if the person owns more than one property, the higher SDLT is payable; however, in other sections and in some of the given examples, the additional charge would not apply if the property being purchased replaces the main residence. Our expectation is that the higher SDLT should not apply in this situation but this needs to clarified.
For property investment businesses, the consultation proposes a relief from the higher SDLT, recognising the positive economic benefits property developers and investors have on the housing market. The government suggests a ‘bulk’ purchase of 15 or more properties would not attract the new SDLT charge. There remains considerable uncertainty over how property developers and investors will be affected by the new rules. Individuals and property businesses in the process of acquiring residential property should aim to complete any transactions before 1 April 2016 to ensure the higher SDLT does not apply.
For property businesses, there are a number of unanswered questions over how they will be affected by the new SDLT charge and whether any reliefs will be available, and this will only become clear after the 2016 Budget.