Changes to SDLT Rates: Will they affect you?

Last years Spending Review and Autumn Statement from the government saw the announcement of a Five Point Plan for housing in the UK. Part of this plan will see higher rates on Stamp Duty Land Tax (SDLT) on purchases of additional residential properties. From 1st of April 2016, there will be a 3% surcharge applied to all SDLT bands.

The extra 3% will apply to anyone owning a second home, this could be a parent buying a home for their child, or a couple purchasing a home together where one is already a home owner. (We have outlined what constitutes as a second home later in this article). With the additional tax collected as a result of the surcharge applied to all SDLT bands, the government plans to provide £60 million to help towards doubling the affordable housing budget.

The aim of the increase is to support home ownership, and free up housing for first time buyers. As part of the Five Point Plan for housing, the government aims to deliver 200,000 Starter Homes which will be sold at a 20% discount compared to market value to first time buyers. Aside from helping first time buyers, the Five Point Plan also aims to accelerate housing supply and offer £2.3 billion in loans to help regenerate large council estates, amongst other plans.

The final legislation is yet to be announced; however this is expected to be passed on Budget Day this March 16th.

Below we take a look at some of the highlights that may affect you if you own an additional property, or are thinking of purchasing one:

What is classed as an additional property?

Anyone owning a second property, that is not their main residence and buying another, or replacing the one they don’t live in, is likely to be affected by the changes.

An additional property will be classed as:

• Any property bought as a furnished holiday let.
• A second home or investment property that you own sole or joint will be included.
• Any property that you have a beneficial interest under a trust will usually be included, dependent on its type.

How does the situation stand for married couples?

If an additional property is purchased, whether solely or in joint names, the consultation states that both married and civil partners will be treated as “one unit”. You will therefore be applicable for the surcharge.

I own a home abroad, will this matter?

If you own a property abroad, this will affect whether the property you are purchasing in the UK is classed as an additional property. If you own a foreign property and are purchasing a property in the UK, you will pay the additional 3%. However, if you own a property in the UK and are purchasing your first foreign property, SDLT only applies in the UK so you will not be affected by the change in the SDLT rates.

Is the property classed as an additional property if I have purchased it for my child?

Getting on the housing ladder has become increasingly difficult for first time buyers; hence the government’s major plans over the coming years to free up housing for first time buyers. As a result of the rising cost in house prices, many parents are taking out a joint mortgage with their children in order to boost their affordability. This will require parents to put their name on the title deeds, and subsequently, will be classed as owning an additional property. However, if you choose to provide money for your child’s deposit, you will not be liable to pay the additional tax.

Are there any exemptions?

• Charities and registered social landlords will remain exempt from stamp duty charges.
• The government is proposing to exempt companies already owning 15 properties from the extra stamp duty, although this is yet to be decided.
• If you have already exchanged contracts before November 25th 2015, you will not have to pay the higher tax rate, even if you complete after 1st April 2016.
• Anyone who has exchanged contracts after November 25th 2015 should have been made aware of the tax rise and will be expected to pay it.
• There are also exemptions to some types of properties. Homes costing less than £40,000 will not be affected, along with anyone owning a caravan, mobile home or houseboat.

If you would like further information on higher SDLT rates, you can view the open consultation here.