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 1st 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:
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
