The government announced in the 2015 Autumn Statement and Spending Review that additional SDLT of 3% will apply from 1st April 2016 on the purchase of additional residential properties.
This will include buy-to-let properties and second homes and will also generally apply to purchases of residential property by companies. The change will not therefore affect you if you are a first time buyer or home owners moving from one main residence to another, provided that you do not own any other property and are not beneficially entitled to another property under a trust. For the purposes of SDLT (stamp duty land tax) a husband and wife or civil partners are entitled to only one main residence between them.
The higher rates will apply on the different property value bands as follows:
• £0-£125,000 o Basic SDLT rate – 0% o SDLT rate on additional properties – 3% (unless the property costs less than £40,000 in which case the rate is 0%)
• Over £125,000 to £250,000 o Basic SDLT rate – 2% o SDLT rate on additional properties – 5%
• Over £250,000 – £925,000 o Basic SDLT rate – 5% o SDLT rate on additional properties – 8%
• Over £925,000 – £1.5 million o Basic SDLT rate – 10% o SDLT rate on additional properties – 13%
• Over £1.5 million o Basic SDLT rate – 12% o SDLT rate on additional properties – 15%
If you are in a position where you own a second home or one or more buy to let properties, the rate of SDLT payable when purchasing a new main residence will not be affected by the changes, provided that you sell your existing home within 18 months before your purchase of the new property. If the new home is purchased before the sale of your old home, the higher rates of SDLT will apply, however, you will be entitled to reclaim the surplus if the old home is sold within 18 months of purchasing the new property.
You should note that financing the purchase of a new main residence by selling a second home, whilst retaining your old home as a second home, will mean that you are still subject to the higher rates of SDLT on the new property. There will be penalties of up to 100% of the understated tax potentially payable if SDLT is not paid correctly due to a mistake that is either careless or deliberate.