In the 2015 Autumn Statement the government announced changes to Stamp Duty Land Tax (SDLT) rates on second homes and buy-to-let properties. From 1 April 2016 when purchasing an additional home, an additional 3% SDLT surcharge is payable, resulting in the following rates:
How is the standard rate of SDLT payable:
Since 2014, a tiered structure was introduced to the SDLT regime. Instead of paying one rate of SDLT on the entire purchase price, the new rates are now payable only on the portion of a property price which falls within each band.
An example of how to calculate the new SDLT rate on the purchase of a second home:
A second home is purchased for £250,500
The first £125,000 is charged at 3% = 125,000 x 0.03 = £3,750
The amount within the next band (from £125,000 – £250,000) is charged at 5% = £125,000 x 0.05 = £6,250
The final £500 is charged at 8% = £500 x 0.08 = £40
The total SDLT payable = £3,750 + £6,250 + £40 = £10,040
Figure 1. How to check whether a particular transaction is liable for the higher rates
What if you own a house overseas:
If you own a home overseas and then buy your first home in the UK, the second home rate applies.
Parents buying a house jointly with their child/children:
The SDLT will also hit parents planning on jointly purchasing a house for their children.
If parents simply help by putting money towards the deposit or act as a guarantor then the higher SDLT rates do not apply. If however the parents take out a joint mortgage or wish to retain ownership of part of the property, then the 3% surcharge applies.
What if I own a property but I’m buying with someone who doesn’t?
The 3% surcharge applies.
Married couples will be treated as a single unit for the purposes of SDLT. If one partner owns a property and the other partner who doesn’t own a property buys a property, the 3% surcharge applies.
What if I am separated but still legally married?
Married couples who are living separately in circumstances likely to become permanent, will not be treated as one unit for the purposes of the second home 3% surcharge. So if one of the individuals is buying a home and their legal spouse is a home owner (but they are not), then they will not be subjected to the 3% surcharge.
Does the SDLT surcharge apply to granny annexes?
Self-contained annexes faced being subject to the SDLT surcharge. However, the government has just announced that it is dropping these plans. Therefore ‘granny annexes’ are not planned to be subject to the SDLT surcharge.
When do I have to pay:
SDLT must be paid within 30 days of completion.
Can I avoid the Stamp Duty Land Tax rates by purchasing the property through a company instead of in a personal capacity?
No. SDLT is charged at 15% on residential properties costing more than £500,000 bought by certain corporate bodies. These include; companies, partnerships and collective investment schemes. These companies also need to pay an annual tax on enveloped dwellings.
The 15% rate does not apply if the property bought by the company is to be used for; a property rental business, property developers and traders, property made available to the public, financial institutions acquiring property in the course of lending, property occupied by employees, and farmhouses. In these cases the standard residential rate of SDLT applies. These exclusions are subject to certain conditions.
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