Chris Williams considers the implications of the new 3% additional stamp duty land tax for residential landlords.
From 1 April 2016, people who buy a second or other additional residential property will have to pay an additional 3% in stamp duty land tax (SDLT) if the property costs more than £40,000. This may look like a low threshold, as entire freehold properties valued below £40,000 will be few and far between, but it will catch leases and part shares as well as entire properties.
It also means that SDLT on additional properties now starts at £40,000 instead of the normal threshold of £125,000, and SDLT rates on a modest holiday home or buy-to-let worth £125,000 and £250,000 will be 5% instead of 2%; 8% between £250,000 and £925,000; 13% between £925,000 and £1.5 million and 15% on such properties over £1.5 million.
The only exclusions will be for individuals buying caravans, mobile homes or houseboats, and companies or funds making significant investments in residential property. There will be no exemption for furnished holiday lettings or companies either.
What is a ‘dwelling’?
For SDLT (and annual tax on enveloped dwellings) purposes a dwelling is a property classified as such for council tax purposes.
Individuals only pay the additional rate where they already own one or more residential properties and they acquire another that isn’t a replacement for a main residence that they have sold in the past 18 months or will sell in the following 18 months. If the property being replaced hasn’t been sold when the new one is bought and SDLT is payable, you’ll have to pay the full tax and reclaim the extra 3% when the old property is sold.
Companies will have to pay the additional 3% too, unless they qualify as ‘large-scale investors’ (LSIs). The government is still working on the details which will be unveiled in the Budget on 16 March 2016, but an LSI is likely to have to be an investor that buys at least 15 properties in one bulk transaction, though another option being considered is to exempt investors who already own at least 15 properties. But this may prove to be attractive to individuals who are looking to build substantial portfolios of buy-to-lets or furnished holiday lettings.
An individual who owns any residential property anywhere, not just in England, Wales or Northern Ireland (Scotland has its own separate land and buildings transaction tax) and then acquires a second residential property in England, Wales or Northern Ireland will pay the additional SDLT charge if the property’s value exceeds £40,000. You may think this is a very low value, but it covers cases where the person acquires an interest in, or share of the property.
Main residence exemption
As originally proposed, the exemption is flawed in that it will only apply to a property that replaces another that was their main residence. If you live in a rented property and own a furnished holiday letting you already own one residence. If you then stop renting and buy a house you’ve acquired a second property and you’ll pay the additional 3% because, even if your new property is your main residence, you haven’t sold a previous residence, so the replacement property exemption won’t apply.
Married couples and civil partners are treated as ‘single units’, so it does not matter if the couple’s main residence is owned jointly or is in one spouse’s sole name; if either of them acquires another residential property the additional rate applies.
Practical Tip:
Take care when buying property for a relative. If you are thinking of buying a home for an elderly relative or a child (e.g. as student accommodation), you’ll pay the additional 3% if you own the property yourself. But if you lend them the money, you won’t have a second property and won’t have to pay the additional SDLT. Instead you should protect your interest through a charge over the house.
