Will the new stamp duty rules affect you?

By Ben Gosling of Commercial Trust

The proposed framework for the higher stamp duty rate for additional property purchases is more complicated than it seems at first glance. Find out if the new rules will affect you.

From 1 April 2016, the purchase of ‘additional’ properties will be subject to a 3% stamp duty surcharge. This will include second homes, some first time buyer buy to let transactions and all subsequent buy to let purchases.

Gov.UK: Spending review and autumn statement 2015 – property taxes

Two main factors determine whether the higher rate will apply

…how many properties you own at the conclusion of the transaction…

If you own only one property at the end of the day on which the property purchase took place, then the higher rate will not apply, no matter whether you bought the property as a residence or to let out.

…and if you are selling your main home and replacing it with the property you bought

This is where the framework can become confusing, as there are a few scenarios in which you may own two properties after the transaction is concluded, but still will not pay the higher rate.

One is if you own a second home, but are selling your main residence and purchasing another main residence. This transaction will not be subject to the higher rates (though you may need to evidence to HMRC that it is your main home, and not your second home, that you are replacing).

Another is if you own one or more rental properties, but again, you are selling and replacing your main residence. Whether you own a single buy to let or a portfolio of one hundred, if you are replacing your old residence with a new main residence, the purchase will not be subject to the higher rates.

What if your old home is not sold straight away?

If you sell your old home after you purchase your new home, you will own at least two properties at the end of the day of the transaction. This means that you will pay the higher rate – but you will be able to claim back the extra tax you paid if you sell your old property within 18 months.

What if you are a landlord but not a homeowner?

If you already own one or more rental properties and are buying your first private residence, you will pay the higher rate of stamp duty on the purchase.

This is because even though you are buying a home of your own, and not an additional property, you are not replacing another home that you own. This example highlights how the concept of replacing your main residence is key to determining whether the higher rates will apply.

Also key is that the old residence is being sold. If you move from one residence to another but keep the old property, either as a holiday home or to let out, the higher rates will apply for the new purchase.

Government consultation and next steps

The government is currently consulting on the suggested framework and is accepting responses from individuals and organisations. The consultation will close on 1 February 2016.

Chancellor George Osborne will then confirm the final policy design during his Budget 2016 announcement on 16 March, before the final rules come into effect on 1 April.

Visit the Gov.UK website to see more information about the consultation.

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