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Stamp Duty Changes April 2016

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On 1 April 2016 the government introduced a higher rate of Stamp Duty Land Tax (SDLT). The headlines are that this higher rate of SDLT applies to anyone buying a property that they are proposing to let out, or use as a second home. However the rules are complex and some who let properties out may not be caught by the higher rate, whilst others may have to pay the higher rate of SDLT even on a property that they are living in permanently.

The additional higher rate of SDLT is 3% of the purchase price. Therefore if a property is being purchased for £200,000 then the normal rate of SDLT is £1,500, whereas if it is a transaction to which the higher rate of SDLT applies then the amount of SDLT payable will increase to £7,500.

If you are buying property to let out, and you already own a property, then you will pay SDLT at the higher rate. If however you do not own a property anywhere in the world, and you are buying a property to let out the higher rate of SDLT will not apply as that is the only UK property that you own. The vast majority of buyers of property to let out will however pay the higher rate of SDLT. 

Similarly if you buy a second home then you are likely to pay the higher rate of SDLT. For example if you own a property, and you buy another property that you intend to retire to then on the purchase of that retirement property you will pay the higher rate of SDLT. There are however some provisions that you could reclaim the higher rate of SDLT if you intended to sell the property in which you are currently living, and you do so within 3 years. Again there are complex rules on how to reclaim the SDLT, which apply for a period of 3 years from the purchase of the second property.

“Unfortunately there have been some unintended consequences, involving people having to pay the higher rate of SDLT that we believe the government did not originally intend to catch with this provision. For example a husband who has separated from his wife for say 6 years, and has not lived at the matrimonial home for 6 years, and is only on the title deeds for the matrimonial home because he needs to be on the mortgage, will pay higher rate SDLT on the new property that he is buying with his new partner because it will be deemed to be a second home property in which he will have a legal interest. The announcement has the appearance of a last minute decision by the government at the time of the autumn statement in November when they reversed their original decision to remove some tax credits. In order to fund the revenue that would have been raised by lowering tax credits they announced an increase in SDLT but the devil has been in the detail and regrettably some house buyers will get caught by the higher rate of SDLT. The government is looking to raise nearly £1 billion per annum from the higher rate of SDLT,” said Kevin Denny, Property Partner at Martin Tolhurst LLP Solicitors.

For further details regarding how the new higher rate of Stamp Duty Land Tax may affect you, please speak to your conveyancer at the firm.