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Stamp Duty Land Tax Update

Stamp Duty Land Tax – the new SDLT legislation is confusing buyers

Stamp Duty is a tax on property purchase, it has been around since the 1600s but the system as we know it has been around since the 1950s.  Stamp duty was replaced by Stamp Duty Land Tax in December 2003.

What was a fairly simple piece of legislation i.e. the tax was charged on purchases above a certain price level, currently £125,000 at the % rate prescribed by law. So no complex calculations and one rate for all. Easy for solicitors to calculate and for property buyers to understand.

From 1st April 2016 the new Stamp Duty Land Tax legislation created a different SDLT rate for buyers of buy to let properties or second homes. The new higher rate is 3% above the standard rates of SDLT on residential property and to make it even more complex the additional 3% applies to the portion of the purchase price that falls within that rate band. To confuse matters further the second property SDLT rate starts at £40,000 purchase price, whereas the residential SDLT rate starts at £125,000. Confused? You are not alone.

There are exemptions from the new second home SDLT rate which is adding to the general confusion of just who is actually affected by this rate.

SDLT Second Property Exemptions:-

  • Leasehold property where the original lease was for 7 years or less. Properties where long leases were granted but have less than 7 years left to run are not exempt
  • Amenity or garden land where there is no relevant dwelling on it (i.e. house/flat). Buying a building plot with a contract for property to be built (i.e. off plan purchases) would not be exempt
  • Non-residential property or mixed use property. So a property that is used as a commercial business or a mixed use property that is part commercial/part residential (think shop with flat above) are exempt
  • Property purchases under £40,005.00
  • Caravans, houseboats and mobile homes that are not fixed to the land
  • Transactions that would usually attract the higher 15% rate for purchases of higher threshold interests in dwellings by companies.
  • Charities will still be able to claim relief from SDLT on property bought for charitable purposes provided the property meets the conditions for relief.

SDLT Second Property non-exempt

  • Buyers of second or subsequent property that costs more than £40,005.00. If you are replacing your main residence and own another property you must pay the higher tax. There is an interim period where if you sell the second property (so that you only retain one property) you can claim back the overpaid tax from HMRC. The period is 36 months.
  • If you own a holiday property in the UK or abroad and buy another property in the UK you would be liable for the higher rate.
  • There are no reliefs or exemptions for property developers who buy, re-furbish and then sell the property. If you own a property and buy another the higher rate will apply.
  • There are no reliefs or exemptions for companies that buy residential properties.
  • Married couples or civil or co-habiting partners are treated as one person for the legislation. Therefore if one of the couple owns a property and the other wants to buy a property in their own name they would have to pay the higher rate tax.

There are other and more complex issues that arise as a result of divorce/separation, trusts and companies which are too lengthy to go into here.  Your solicitor will be able to interpret the new legislation and advise you.

How to pay the new SDLT

The process is the same as before i.e. there will be an SDLT form which your solicitor will send you to complete, sign and return. The only difference is that you will need to choose a new code on the SDLT return – code 4 in box 1. Your solicitor will guide you in completing the form and paying the accurate amount of SDLT

How to claim a refund of overpaid SDLT

If you sell your previous main residence within the 36 month period and wish to claim an overpayment of tax there is a form to complete.  You will find this on gov.uk. The form must be completed within 3 months of selling the property. This can be completed by you or your solicitor.

The HMRC claim to aim to process refunds within 15 working days provided they have the correct information.

 

 

 

 

 

 

 

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