Stamp Duty Land Tax and Second Properties - The Basics
Stamp Duty Land Tax (SDLT) was brought in to replace the old 'stamp duty' and has been complex since its inception.
Among the transactions subject to SDLT are residential property sales. Levied at a rate of 2 per cent on purchases of £125,001 to £250,000 (higher rates apply above that and for second properties owned by individuals and properties purchased by companies: see below), it adds significantly to the acquisition cost of many properties. Tax is due on a rising scale on the additonal sales consideration as follows : above £925,000, the current rate is 10% and above £1.5m, 12%
The UK currently has a buoyant residential property market and the values of residential properties are such that it is becoming extremely difficult indeed for first-time buyers to get on the housing ladder, as the deposits required are often substantial and saving towards them is made more difficult as rents follow property prices upwards.
In addition, housing starts have been at a level below that which is needed to cater for the rise in demand for many years.
The situation has been exacerbated by the strength of the 'buy to let' market, as the combination of decent income yields and rising capital values has led to a great deal of the available housing stock being used as rental property. Also, in some rural areas, the prevalence of second homes which are unoccupied for much of the time has eroded the local economies and put property well out of the reach of local people.
One of the ways in which the Government has decided to try to ameliorate this situation is to put in place measures that make second home ownership and owning 'buy to let' property less attractive. The hope is that this will cause some of these properties to be released back to home ownership or at least act as a curb on demand.
Accordingly, a higher rate of SDLT has applied for such properties since 1 April 2016. The additional SDLT levied is 3 per cent on top of the existing rate and applies to the whole of the purchase price.
The higher rate of SDLT applies where the consideration paid for a second property or buy-to-let property is £40,000 or more, but does not apply if the property is a 'mixed-use' property, such as a shop with a flat above it.
In essence, the higher rate of SDLT will apply where, at the end of the day of a purchase, you own more than one property, provided that the property being purchased is not replacing your current main residence. Where the existing main residence has not been sold, the higher rate of SDLT is payable, but the additional charge is then refundable if that property is sold within three years of the completion on the second property. There is a transitional provision so as not to disadvantage those who disposed of their main residence before 25 November 2015. Under that provision, where a property used as a main residence has been sold within the three years prior to the purchase of a new main residence, the new purchase will not be subject to the higher rate as long as the new property is bought before or on 25 November 2018.
There are a number of complexities not dealt with above. A calculator can be found on the Tax Service website.