Helen Martin Buying a Second Property – Stamp Duty Land Tax Proposals for April 2016

Stamp Duty Land Tax Proposals

From the 1 April 2016, purchases of additional residential properties, such as buy-to-lets and second homes, are likely to be subject to increased taxation upon completion under new Stamp Duty Land Tax proposals. So how will this affect your future property acquisitions?

Who will be affected by this?

Anyone acquiring a second residential property after the 1st April 2016 will be subject to the new system. This could include any of the following:

  • Purchasing a Buy-to-Let home;
  • Purchasing a “second home”;
  • Buying a home in England or Wales when you already own a property abroad;
  • Purchasing a property for your children but in your own name when you already have your own property;
  • Purchasing a property (either in your sole name or jointly) when your spouse already owns a property in their sole name;
  • Purchasing a property prior to completing on the sale of your main residence.

An exemption will be available only to social landlords, companies who already own 15 properties and those purchasing mobile homes, including houseboats.

A relief will also apply to purchases under the value of £40,000 or for instances where the only property owned by you has a current value of under £40,000.

What is the new taxation?

The new taxation is an amendment of the current Stamp Duty Land Tax. Currently, Stamp Duty Land Tax is charged at a steadily increasing rate dependent on the value of the property, as follows:

Band

  Existing SDLT rates

£0 - £125k

  0%

£125k - £250k

  2%

£250k - £925k

  5%

£925k - £1.5m

  10%

£1.5m +

  12%

Using this, the first £125,000 is charged at 0%, with the next £125,000 being charged at 2% and so on.

Under the new system, all of these rates increase by 3% and therefore buyers are at risk of having a greatly increased Stamp Duty Land Tax bill upon completion of their purchase. The proposed rates are displayed below:

Band

  Proposed SDLT rates

£0 - £125k

  3%

£125k - £250k

  5%

£250k - £925k

  8%

£925k - £1.5m

  13%

£1.5m +

  15%

When applying this to a purchase of £200,000, the current Stamp Duty Land Tax Bill of £1,500 would increase to £7,500 - five times the current amount.

What happens if you purchase property while in the process of selling my main residence?

HMRC will look at how many properties you hold at the end of the completion date for your purchase. Therefore, if you purchase on the 1st April 2016, but only sell your original property on the 2nd April 2016, you are judged to have been holding two properties upon completion.

This means you will incur additional taxation, but with an important caveat – should you sell your other property within 18 months of your purchase completion date and become the owner of one property, you will be able to apply to HMRC for a refund of the additional tax.

What should you consider before purchasing a second property?

It may be advisable to consider the name in which the property is going to be put into. For instance, if you already own a property and are obtaining a further property for someone’s benefit, it may be worth considering purchasing the property in the other party’s name (assuming they themselves do not own a property already) to avoid the additional 3% charge.

When considering this step, it is important to ensure funding will still be available for that party. This option may not be viable for those who are acquiring a mortgage due to another person’s inability to obtain one. It is also essential that you take legal advice prior to exchange to investigate how it will affect your interest in the property, as you would not be classified as legal owner.

Unfortunately, it appears the proposal will treat current spouses as “one unit”, so even if you do not already have a property you will be faced with the extra taxation regardless of whether you purchase in joint names or your sole name.

It is also important to understand that the system will focus on how many properties you own upon the purchase completion date, so the option of “flipping” your main residence to the new property will not remove the additional Stamp Duty Land Tax rate. You will still be classified as owning multiple properties.

If you would like advice on future property purchases, our conveyancing team in Essex can offer helpful guidance. Call us on 01702 477106 to arrange a free, 30-minute consultation. You can also find us on Facebook, Twitter, Google+, LinkedIn and Instagram.


Awards & Recognitions

The expertise of our solicitors is regularly recognised by some of the profession’s most distinguished organisations. As well as being a member of a number of Law Society schemes, we have won awards at the Law Society Excellence Awards, the Halsbury Legal Awards and the Modern Law Awards. We have also received recognition in the form of the Lexcel mark of quality, a Legal 500 listing and a place on the shortlist of The Lawyer’s Boutique Firm of the Year.

Awards and Recognitions of Giles Wilson
Awards and Recognitions of Giles Wilson
Awards and Recognitions of Giles Wilson
Awards and Recognitions of Giles Wilson
Awards and Recognitions of Giles Wilson
Awards and Recognitions of Giles Wilson
Awards and Recognitions of Giles Wilson
Awards and Recognitions of Giles Wilson
Awards and Recognitions of Giles Wilson