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Higher Stamp Duty Land Tax for second homes from 1 April 2016

View profile for Emma Gilliland
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Buying a second home or investing in a “buy to let property” is about to become more expensive. This shift is part of the governments’ aim to make it easier for first-time buyers to get onto the property ladder.

In November 2015 the Chancellor of the Exchequer announced the introduction of new higher stamp duty land tax (SDLT) rates of 3% above the current residential rates. The higher rates will apply to the purchase of “additional” residential properties from 1 April 2016 onwards. The government is still consulting on the exact form of the legislation. Here are the key points:

  • If you can complete your purchase on or before 31 March you will escape the higher SDLT rates.
  • The crucial point is the day of completion and you must pay the higher rates if you own two or more residential properties at midnight on that day (but see below in relation to main residences).
  • If you replace your main residence but have not sold your existing main residence yet, you must pay the higher rates on the new property but you will be able to apply for a refund of the additional 3% SDLT provided you sell your previous main residence within 18 months of replacing it with your new main residence.
  • Married couples and civil partners can only own one residential property between them before the higher rates apply on any additional property.
  • The position is different with unmarried couples where one party owns a property in his or her sole name and the other party then purchases a property. Current information suggests that this additional purchase will not be subject to the higher rates.
  • The new regime will apply even if the property you already own is outside the UK. It remains to be seen how HMRC will be able to enforce this effectively.
  • The position outlined above will differ where the purchase is a “mixed use” property or where six or more residential properties are being purchased in one transaction; it is likely that the existing treatment of these types of purchase will continue. There may also be an exemption for “large scale” investors in development projects, but there is very little detail available yet.
  • It is proposed that the first purchase by a company or collective investment vehicle will be subject to the higher rates, as the government is alive to the possibility that buyers may try to avoid the higher rates by purchasing through a company. Purchases by partnerships will be subject to the higher rates, and purchases by trusts and settlements will be subject to special rules, the details of which are not yet clear.

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