The chancellor's 2016 Budget was a concerted attack on the buy-to-let market. Whilst most of the headline news was already announced in 2015 the actual legislation wasn't available until Budget day.
The first change will be noticed when purchasing a residential property in England, Wales or Northern Ireland. For individuals, where the property being bought is a second property, and not a replacement of the main residence, an additional rate of Stamp Duty Land Tax (SDLT) applies of 3%. The new rates only apply to residential properties and are summarised in the table below:
|Up to £125,000||3%|
|Between £125,000 to £250,000||5%|
|Between £250,000 to £925,000||8%|
|Between £925,000 to £1,500,000||13%|
Non-residential properties, including mixed-use properties, are not subjected to the additional 3% rate although the rate system was changed in the 2016 Budget in order to bring the charging mechanism in line with the residential property one, i.e. a banding system.
As is often the case with new legislation, there are certain exemptions from the new rules for individuals. The most important, and probably most used, is the exemption for the replacement of a main residence. If the new property is to be used as a main residence there won't be the additional rate to pay if the acquisition is "matched" with a disposal of the individual's previous main residence in the preceding three years. If there is a delay in selling the previous main residence and if, at the end of the day of acquisition of the new property, an individual owns more than one property the new rates will apply. A refund can be obtained if the previous main residence is subsequently disposed within three years.
The diagram below shows the time scales for applying the replacement main residence exemption.
In most cases it will be easy to determine if an individual owns more than one property but situations involving joint owners, particularly spouses or civil partners, can be complex.
HMRC always consider married couples or civil partners to own property jointly for SDLT purposes. For example, a married couple have a main residence that is in the name of the wife and no other property is owned by either. If the husband acquires a buy to let property the additional rate of SLDT will apply as the purchase will be classed as an additional residential property for both parties.
When a property is acquired jointly the rules are the same as for married couples. Each purchaser is looked at and, if one or more of the joint buyers already own residential property, the additional SDLT rate is applied as necessary.
Care needs to be taken when parents buy property with their children as the higher rate will apply if the parents already own property.
Where the chargeable consideration is less than £40,000 the additional rate will not apply as an SDLT return does not need completing. Also, interests in a property worth less than £40,000 will be ignored in determining if additional property is being purchased.
Can I use a company to avoid SDLT?
No. When using a company to purchase residential property the new rate applies for all properties purchased, regardless of whether any properties are already owned.
There are no exemptions for property development companies but mixed use and commercial properties are not liable to the additional rate of SDLT.
When do I have to tell HMRC about a purchase?
A SDLT return has to be made to HMRC within 30 days of the property acquisition. Any tax due should be paid at the same time.
The above contains some of the main rules to help determine if additional property is being bought. In most situations the position will be quite clear but it is important that careful consideration is given when purchasing new property, particularly when any purchase is being made jointly.
If you would like to discuss any of the above points please talk to your usual Gepp & Sons contact or Marc Dorsett on 01245 228146.