Are you in the market for a new home? How about looking for an additional residential property to build your rental portfolio? Or maybe you are a trader, buying and selling residential property? Whichever type of purchaser you are, the rates of Stamp Duty Land Tax (SDLT) you may have to pay on the purchase of a residential property changed on 1 April 2016.
On 4 December 2014, the way in which SDLT is calculated moved on to a banded system, so the consideration payable is split between the respective bands, with each proportion taxed at the relevant rate. So for instance, if you are thinking of buying a holiday home in Cornwall for £350,000, you should expect to pay an additional £10,500 SDLT.
This is because the additional property or companies’ rate is inclusive of an additional 3% surcharge. The question is, do you need to pay the additional 3%?
If you are replacing your main residence, you can avoid the surcharge. But depending on the timing of your sale and purchase, you may have to find the cash to pay the 3%, even if temporarily.
• If you sell your current main residence and replace it on the same day, you do not pay the additional 3% at all.
• If you buy a new main residence before selling your current one, you have three years to sell your current main residence in order to obtain a refund of the additional 3% SDLT that you will have to pay to HMRC.
The additional 3% does not apply to mobile homes, caravans, house boats or purpose built student accommodation.
What about when buying a property as part of a business?
Limited companies will need to pay the additional 3% rate on all property acquisitions, unless the consideration paid for the property is less than £40,000, or the property is subject to a lease of more than 21 years.
You do not have to pay the additional 3% if you buy a residential property for yourself, and the only other residential properties are used in the trade of your partnership. Furthermore, residential properties bought buy partnerships are only subject to the additional 3% if the partnership already owns a residential property.
These rules are complex, and can add a significant cost to your purchase. Should you have any queries about how the additional 3% SDLT may apply to you, please contact any of the Tax Team at Team CB.