Stamp Duty Changes - Guide for clients and conveyancers

The Government has now confirmed the rules for higher stamp duty land tax higher rates for purchases of additional residential properties.  These changes will take effect as from the 1^st April 2016

In this article some of the main features of the changes are examined.

The higher rates will be 3% above the standard rates of SDLT but will not apply to purchases of property under £40,000 or purchases of caravans, mobile homes and houseboats. Transitional provisions provide that where contracts were exchanged on or before 25 November 2015 and the purchase completes on or after 1 April 2016 the higher rates will not apply.  A calculator is available on the gov.uk website which calculates the amount of SDLT due on purchases of additional residential properties:https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro

If you’re replacing your main residence you will not be liable to pay the extra 3% SDLT if the property you are purchasing is replacing your main residence and that has already been sold.  This is the case even if you already have two or more properties, and you sell your main residence and buy a replacement residence within three years.

Renting a new main residence in the time between disposal and purchase will not prevent the purchase from being a replacement of a main residence unless the period of the tenancy agreed is more than seven years.

If there’s a delay selling your main residence and it hasn’t been sold on the day you complete the purchase of your new main residence you will have to pay higher rates because you own two properties.  However you should  get a refund if you sell your previous main residence  within three years.  There is a simple form to complete which will be available on 1st April. This will need to be completed within 3 months of selling your previous main residence, or within 12 months of the filing date of the return, whichever comes later. This can be completed by the main purchaser of the property which the higher SDLT payment was paid on or by a solicitor acting on your behalf if you provide a letter of consent.

If you are purchasing any properties jointly with other people and any of them already own one or more properties, you’ll need to pay the higher rates.  Ironically this will cause unfairness to certain people who are looking to get their feet on the property ladder.  Take the following example.  A couple is in the process of purchasing a property jointly, which will be their main residence. One of the couple currently owns another property which is rented out and the other is a first time buyer. Surprisingly ( and I say this as the objective behind the changes is to make it easier for first time buyers to find affordable property) the higher rates will apply to the total purchase price as following the purchase one of the joint owners will own an interest in an additional residential property. For joint purchases the higher rates will apply if either of the purchasers own other residential property.

If you’re married or in a civil partnership, buying a property and your spouse or civil partner already owns a property you may still be liable to the higher rates though as is mentioned above you may be able to claim a refund if the interest in the other property is disposed of within 3years.

If you are purchasing a property and at the same time inherit a share in another property which is 50% or less of the market value of the inherited property the inherited share will not be taken into account providing the purchase completes within three years of becoming entitled to the inherited share.  This means the additional tax will not be payable.

It’s worth mentioning in conclusion the following exemptions:

You don’t have to pay SDLT or file a return if:

·         no money or other payment changes hands for a land or property transfer

·         property is left to you in a will

·         property is transferred because of divorce or dissolution of a civil partnership

·         you buy a freehold property for less than £40,000

·         you buy a new or assigned lease of 7 years or more, as long as the premium is less than £40,000 and the annual rent is less than £1,000

·         you buy a new or assigned lease of less than 7 years, as long as the amount you pay is less than the residential or non-residential SDLT threshold

·         you use alternative property financial arrangements, e.g. to comply with Sharia law

What does this mean for conveyancers?

The first consideration is to ensure that clients are made aware of the changes and of the obligation which rests with the client to provide full and truthful disclosure of the circumstances which surround the purchase. The legislation places the obligation on the client to make the correct declaration and will not require the conveyancer to ‘police’ the system

I do consider however that terms of retainer should make it clear that advice on taxation issues relating to the transaction including stamp duty does not fall within the ambit of the retainer and that if advice is sought is should be taken from an accountant or expert.

If as is usual the conveyancer acts as the client’s agent to submit the stamp duty return then again the appointment letter should make it clear that the return is being submitted on the basis of the information supplied and that the conveyancer does not accept any liability for any information sent which turns out to be incorrect.

All quoting systems should be reviewed and changed and consideration be given to the questions which need to be asked to determine stamp duty liability.

Questions like the following:

·         Do you or your partner ( if applicable) own any other property?

·        If you do is the property you are purchasing to be used to replace your main residence which you are selling or which you have sold within the past years ( calculated with reference to the date on which you estimate you will be completing your purchase)?

If the answer to the first question is yes and the answer to the second question is no then in all likelihood the additional stamp duty will apply.  There may be other exceptions but in general terms this should flush out the information required.

There should also be training sessions arranged for all staff so that the detail of the changes and the examples within the Revenue’s Practice Note can be considered.

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at david@mjpconveyancing.com

Are you prepared for the Stamp Duty changes?

In his Autumn Statement this week, the Chancellor announced a 3 percentage point surcharge on stamp duty land tax (SDLT) for people buying a buy-to-let or second home from April 2016.  For example, on a home worth £275,000, SDLT would rise to £12,000 from £3,750. A significant jump. 

Below are some of the common questions raised along with some guidance though please do note that the legislation has yet to be implemented, and that there could be changes made to the proposals during the consultation process.  It is therefore important not to rely on this guidance without first checking with your conveyancer. 

Are there any exemptions?

The change will not apply to buyers of caravans, mobile homes or houseboats, nor, subject to a consultation, to companies or institutions owning more than fifteen residential properties.

When will this all happen?

1st April 2016

On what value of purchase will it apply?

Treasury documents released immediately after the speech suggested  that the first £40,000 would be tax free. It was however later confirmed that while purchasers who buy a property below £40,000 won’t have to pay the additional 3%, for all purchases above that, the 3% extra tax applies on the entire price. Currently, the rate for stamp duty is 0% on properties up to £125,000, then 2% on any sums over and above £125,000 to £250,000. Properties sold at £250,000 to £925,000 pay 5%, then it is 10% above that. These rates remain the same for standard residential buyers though 3% extra will be added if the property is to be used as a buy-to-let or second home.

If I have already exchanged contracts before the changes were announced will I be affected ?

If you have exchanged contracts on a property caught by these changes before the announcement was made,  but completion is on notice and there is a possibility you will complete after 1st April 2016, my view, having regard to how previous changes have been introduced, that  the increased surcharge is unlikely to apply. 

If I have exchanged contacts after the announcement but are due to complete the transaction after 1st April 2916 will I be required to pay the extra tax?

Probably yes, though there may be ways of avoiding this if you are able to gain possession of the property under license before completion, though do remember that if you are looking to do this there is a requirement to pay the Stamp duty within 30 days.  

There are other options  including the payment of 90% of the purchase price before the deadline or making the consideration partly rent and partly premium, and paying some rent before April.   The best advice is to speak with your conveyancer and seek advice. 

If I am thinking of purchasing a buy to let or second home what do I need to do to ensure that I do not have to pay the extra tax?

Putting it simply make sure you complete the transaction before the 1st April 2016. 

Think also about setting up a corporate vehicle to purchase the property.   Your solicitor or accountant will be able to advise you on what this involves.   Do keep in mind that if you have a property portfolio in your own name and are looking to transfer the ownership of existing properties into a limited company do ensure this is done before the 1st April 2016 otherwise the surcharge will apply to those transactions.  There could also be capital gain tax implications on which advice should be sought. 

Can I purchase the second home or buy to let in my husband or partners name?

I would not advise this as an option as I am sure the Revenue will be alert to this and make sure there is no gap in the legislation to allow this to happen.  There already exists legislation around 'connected persons' and I anticipate this will  be expanded upon to make sure this glaring and obvious situation does not become a loophole.  

What effect is this likely to have on the market?

This together with the recently announced changes to tax relief will make buy to let to the amateur landlord less attractive.  This could cause a shortage of rental properties and may lead to existing landlords pushing up rent.  Developers may also reign back on new builds if the demand for buy to let is no longer high. 

It could also lead to landlords offering to pay less for buy to rent properties and have the effect of making investment property cheaper. This my have been one of the intentions behind the change. 

It is likely that we will see a surge of purchases of this type of property before the deadline and this could in the interim force prices up if there is a mad rush

What should I expect from my conveyancer?

If there is a rush your conveyancer may find it difficult to cope with the large number of cases and may decide in an effort to control the large flow of work to increase fees for this type of work. I read recently that it is estimated as many as  50,000 buy to let transactions could be rushed through before the deadline. 

Clearly it is important to make sure your conveyancer is aware of the purpose of the transaction  and the need to complete before 1st April next. Your conveyancer may be reluctant to give a guarantee and require you to pay the fee irrespective of whether it completes in time. 

Where are the grey areas?

What is the position when a spouse or cohabiter breaks up with a partner and still has an interest in the jointly owned property.  Does the purchase of alternative accommodation count as a second home. Likewise where a property is purchased due to short term relocation for work where the existing property has yet to be sold. 

Hopefully the details will be ironed out once the consultation process is concluded and the legislation is passed.  Until then all you do is to work with what is known and to keep the deadline of the 1st April firmly in mind. 

MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at david@mjpconveyancing.com

Conveyancing process needs urgent reform

What can be done to make moving home faster and less expensive?  

This is a burning question and one that has yet to be addressed by Government despite the fact we currently face a major housing crisis and a situation where first time buyers are finding it increasing difficult and expensive to find a home.  The problem facing the first time buyer is likely to increase shortly with the withdrawal of the stamp duty concession and the forthcoming changes to how mortgages will operate in the future.

A brave Labour Government sought changes, the first since 1925, with the introduction of the doomed home information pack, but this was shot down in a blaze of glory by the Coalition Government when it came to power in May 2010.  Unfortunately in the rush to score political points no one seemed to care that by removing this attempt of reform it left the door open once again for the return of the problems associated with aborted transactions, increased costs and delay.

In fact, we are still left with an antiquated process and one that cries out for immediate reform.  The question is whether the current Government has the courage and inclination to do anything about it. 

So where do the problems lie?

Disclosure

As the law currently stands it is for the buyer to do most of the running around and to ask the seller questions because the duty to discover any problems with the property rests with the buyer.  There is no duty on the seller to volunteer adverse information about the property unless asked.  This means we have this bizarre process of having to ask the seller a series of questions hoping that all of the right questions are raised.   This is often a long and protracted process and one that could be avoided if the seller was required to bear all about the property to be sold.  This could be through thee completion of forms/questionnaires, documents that could be completed when the property is first placed on the market.  

Why not get the estate agent to ask the seller to complete the form and to make this available to prospective buyers.  At least the buyer could then decide on whether a survey would be needed.  All of this would take place before the lawyer is instructed and would save so much time.

Some may argue this is a ‘HIP”.  No it is not.  There is no added expense for the seller or the buyer. The seller simply completes a form knowing due to a change in the law that the duty to disclose rests with him or her and this forms part of the marketing process.   It would save time, it would save money as the transaction could proceed that much quicker and it would mean both seller and buyer standing far more chance of completing the transaction than they do at present.

Searches

Before the days of the HIP there were often delays in procuring searches.   Due to the shake up of Councils caused by the introduction of the HIP, most Councils have streamlined and improved service levels.   On top of this, personal search companies following the collapse of the HIP have faced a drop in demand for searches and this has led to increased competition and a vast improvement in the time it takes to deliver search results.

Search related delay is therefore uncommon.

However it is a bizarre situation that each time a property is sold a buyer is required when purchasing with a mortgage to order new searches.   This is often costly.  Often the cost of the search package is more than the fee charged by the solicitor!

In a time when the majority of the land in this Country is registered at the Land Registry would it not make sense for information on water and sewage and environmental issues to be noted on the Land Registry Title Document so that future buyers could see that at the outset and decide whether to ask the suppliers of the information whether there has been any change to the data since it was first supplied?   The cost of checking would be far cheaper than having to order a new search each time the property is transacted.

The same could apply to planning and building regulation data requiring this also to be noted on the Register the first time a property is sold and the data is disclosed.  How many times have property lawyers had to run around after planning and building regulation documents. 

On this subject if lenders could make it clear that they are not interested in planning and building documents which relate to matters of over 15 years in age this would also save time and money.  Some simple changes to the law to make it clear that no liability can arise on planning and building regulation breaches after a set period of time would put an end to this ridiculous and unnecessary paper chase.

Title defects

There will always be the occasional problem with title that needs to be addressed through insurance.  Why is it not possible that when the effect is found and insurance is taken out that there is not a requirement on the purchaser to register the insurance details at the Land Registry?  This would in terms of future due diligence save time and money and also avoid a future purchaser who may not have had the original policy passed to him or her, having to take out and pay for a fresh policy.  

Mortgages

Obtaining a mortgage offer once the mortgage is approved is no longer a reason for delay.  Most buyers receive their mortgage offer very early in the process.  The reason for this is that the lenders are issuing far less offers than they were before and therefore the paperwork of those mortgages they take on is coming through much faster.

Client Delay

Clients who sell have quiet a bit of paperwork to complete and it always amazes me that responsibility of over seeing this rests with the lawyer.  I am not sure why the selling agent could not ask the seller to complete these when the agent is engaged. It would save a lot of time and would quicken the process.

Solicitor delay

I always tell my clients that I can only be as fast as the slowest solicitor in the chain.   It is frustrating when you do as much as you can to progress a transaction only to find the solicitor acting for the other party is not responding or taking too much time to respond.

What can be done to improve this?  Very little though in a climate where lender panel membership is of importance to the survival of most conveyancers perhaps lenders will in the future take a closer look at the activity and performance of panel members and be more inclined to remove members where there is evidence of   repeated ineptness.

Conclusion

I accept a change in the law to reverse the maxim of ‘buyer beware’ would involve a radical switch, however by doing this the whole process would be far more transparent, quicker and cheaper.    It would lead to the front loading of information on a sale and if the requirement to register search data at the Land Registry along with title defect insurance was also introduced this would mean a prospective buyer would have to hand before an offer is made all the information he or she would need in making an offer and thereafter engaging a solicitor.

The cost of obtaining the title information, a cost which is already met by the seller may increase due to the extra data recorded and supplied, but this would easily be off set by the saving on not having to order full searches and reduced conveyancing fees due to a more streamlined service.

What are the chances of this happening?  Remote I would say as there is too much vested interest in the process as it presently operates and you also have a Government that says on the one hand it wishes to reduce bureaucracy and save costs, whereas on the other hand it has clearly stated it is not keen on introducing regulation that could hamper an already ailing property market.   It seems to have little appetite to interfere with the process. 

So it looks as if we may be facing another 100 years of operating a slow, costly and totally unfit for purpose  home moving process.   

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

Beat the 24th March Deadline for Stamp Duty

The time to act is now if you are thinking of buying a new home as the concession on Stamp Duty for first time buyers ends on 24^th March. 

Until that date first time buyers do not have to pay Stamp Duty on property purchased for £250,000 and under.

Instruct us now to make sure you exchange and complete before this deadline and save up to £2500 – our prices start at £240 Plus VAT.  We offer a fast and professional service and are open Monday to Thursday 9 am to 8 pm, Friday 9 am to 5 pm, Saturday 10 am to 1 pm.

Morgan Jones and Pett are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877000 or via email at davidpett@m-j-p.co.uk

Property Ladder - Tips for moving up

Today saw an interesting article published on Money Supermarket’s website focusing on tips for those moving up the property ladder.  

It reports that recent research by Lloyds TSB has revealed that those looking to buy their first home are not the only ones struggling.  The bank found that 19% of people already living in their first home and looking to move on simply do not have enough equity to do so.

The average second home is priced at £48,216 more than the average first home, which is a hefty 32% increase.

The TIPs for those looking however to make that next step include:

Get an idea of your home's value:

Websites such as www.propertypriceadvice.co.uk provide a lower, higher and average valuation depending on confidence and activity in the market. Make sure you keep a realistic view on the value.

Be prepared to take a price cut:

If your home isn't budging, be prepared to reduce the price as this might be your only option. According to the Lloyds TSB research just 13% of people will reduce the asking price if they can't sell their home at the current price

Try to keep the value to under £250,000:

The duty  jumps from 1% to 3% as soon as you break through the £250,000 mark on your new home, so try to keep under the threshold by shopping around and, of course, negotiating. Keep in mind that the average expenditure on other moving expenses is around £5,500.

Stamp Duty Tax planning may be option for those buying above £250,000.

Remember only first-time buyers who have never owned a property before are exempt from paying Stamp Duty on properties costing up to £250,000, and this exemption only applies until March 2012. If you are buying with someone else, they must never have owned property before either for the tax perk to apply.

Morgan Jones and Pett Solicitors - 01603877000

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