Consultation on the Government’s proposal to introduce higher rates of Stamp Duty Land Tax (SDLT) closed on Monday, and we wait to see what, if any, changes there may be to the original proposal set out last year.
If the changes do go ahead as proposed, a higher rate of SDLT will apply to purchases of additional residential properties with effect from 1 April 2016. The higher rates will be three percentage points above the current SDLT rates giving a maximum 15% charge on the highest slice of the purchase price above £1.5 million.
The charge is far reaching but won’t apply to first time buyers, and so long as people replacing their main residence do so either up to 18 months before or after they buy a replacement residence, it won’t apply to them either. If the main residence is sold up to 18 months after buying a replacement, the additional charge will apply but a refund can be claimed once the former main residence has been sold within the time limit.
But individuals will not be able to elect which of their residences is their main residence, and so – confusingly - the treatment of a main residence for the purposes of the higher rates of SDLT may differ from the treatment for capital gains tax.
In addition, married couples/civil partners living together are treated as one unit. This means that they may own only one main residence between them at any one time for these purposes. HMRC will take into account a number of factors when considering whether a property is an individual’s main residence – ie where the individual and their family spends their time, at which residence the individual is registered to vote, etc.
Individuals don’t pay SDLT on properties they inherit, and this won’t change with the introduction of the higher rates of SDLT. However, inherited property will be relevant when determining if a purchaser is purchasing an additional residential property.
In addition to this, there are concerns that those with overseas properties may find that also having just one property in the UK might mean they also end up paying the higher rate of SDLT.
But the main scenario in which the charge will apply is the purchase of a buy-to-let or a holiday home. With restrictions to tax relief on mortgage interest set to bite for 2017/18 onwards, landlords may feel they are being attacked from all angles and are facing considerably higher tax costs in the future.
Anyone considering purchasing a residential property needs to consider carefully how these new rules might affect them. One thing’s for sure - conveyancing solicitors will be very busy in the days leading up to 1 April this year.
If you would like to discuss any of the issues raised, please contact Jackie Hall or your usual RSM contact.