4 August, 2016
It is now well known, anyone buying a second or subsequent residential property is now subject to an additional stamp duty land tax charge – that is, 3% more than is payable when you buy your first property.
The basic points of the new rules which you will need to bear in mind if you are contemplating the purchase of a second property are set out below.
Firstly, the rate of tax is calculated as follows:
|Purchase price of property||Rate for first home||Rate of second+ home|
|Up to £125,000||0%||3%|
|Over £125,000 and up to £250,000||2%||5%|
|Over £250,000 and up to £925,000||5%||8%|
|Over £925,000 and up to £1,500,000||10%||13%|
When does the new rate apply?
This is not as straightforward as you would think.
The rate applies to the purchase of a ‘major interest’ in one or more ‘dwellings’ at a time when the purchaser owns a major interest in another dwelling. This does not include a leasehold interest if the lease was originally granted for a period of 7 years or less. It includes freehold interests and long leaseholds.
A ‘dwelling’ is a building or part of a building that is used or suitable for use a single dwelling, or is in the process of being constructed or adapted for use as a dwelling. Included in the definition of ‘dwelling’ are holiday homes, including those which cannot be used all the year round, and furnished holiday lettings.
In some cases, a building may include one or more dwellings – for example, a self-contained part of a building will probably be a separate dwelling if the residents of that part can live independently of the residents of the rest of the building, including independent access and domestic facilities.
The new rate does not apply if the purchase price is less than £40,000 (very rare) or if there is ‘mixed use’ – ie partly residential and partly commercial. It does not apply to caravans, mobile homes or houseboats.
Replacing your main home
The new rate will not apply if you are selling your main home and replacing it with another. Sometimes the sale and purchase do not coincide and the new rate of tax has to be paid on the purchase.
However, where the new home is purchased first and the old home is sold within the next 3 years – and there is an intention to use the new home as the main residence – the extra stamp duty land tax paid on the purchase can be reclaimed. Not so good for your cash flow.
Joint purchasers, married couples and civil partners
You should be aware that if you buy a property jointly with another person, the new rate will apply if either one of you owns another residential property. There is no reduction on the basis that for one of you this is your only home.
Likewise, if you are married or in a civil partnership, and one spouse or partner owns a property while the other does not, the higher rate applies where the spouse/partner who does not own a property buys one in their sole name – even though the other is not a joint purchaser.
Further rules apply where the property is being purchased by a partnership or company.
Each situation should be considered carefully in advance as the new rates can result in very high sums of tax becoming payable.
Contact our tax solicitors
If you need help and assistance in what to consider when purchasing a second property please please contact Sue Adams or by telephone on 01202 204 561.