The 3% additional SDLT charge on residential property
22nd April 2016
Posted in Articles, Business Tax, Private Client, Property Tax, Trusts and Estates by Laura Hutchinson
You may be aware of the recent increase in Stamp Duty Land Tax (‘SDLT’) rates affecting purchases of residential property; typically the acquisition of a second ‘home’. This additional 3% charge, over and above the normal residential SDLT rates, applies to acquisitions:
- on or after 1 April 2016,
- by an individual who already owns one other residential property.
You may not be aware that this additional 3% charge also applies on the acquisition of the first property for both:
- Discretionary trusts, and
- Companies
Therefore those looking to acquire properties within a company in order to facilitate unrestricted interest relief against rents (due to the personal restrictions on interest relief which are set to come in), will have this upfront increased cost on their first purchase.
The government have drafted this charge for individuals very tightly, even having gone as far as to lump otherwise unconnected, joint purchasers together. Even if just one of them owns another residential property, the additional 3% SDLT charge will apply to the total acquisition cost, regardless of the fact that it may be the other purchaser’s only home. As expected husbands and wives are effectively treated as one person, even if they each buy residential properties in their sole names.
Reliefs – replacement main residence
Where individuals acquire a second residential property, the 3% charge will automatically apply. However, a refund will be given if the second property replaces their first property as their main residence. The sale of the first main residence must be disposed of within three years of acquiring the new main residence. Although there is a refund this could still give rise to significant cash-flow difficulties.
It may be surprising to know that this refund will still be available even if, following the sale of the first property, they own two or more properties. The only condition of the refund is that the new property acquired after 31 March 2016 replaces their original main residence. Unfortunately there is little that can be done to manipulate which property is the main residence. This will be based on the facts of the case, with no ability to make an election or use any Principal Private Residence relief election as proof.
All in all this change results in a large upfront cost that will pose cash-flow difficulties, even if a refund will at some point be available.
