Higher Rate Stamp Duty Land Tax for Purchases of Additional Residential Properties
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The 3% Stamp Duty Surcharge
What is the 3% Stamp Duty surcharge and who pays it?
The 3% stamp duty surcharge is an addition to existing Stamp Duty rates (set out in the table below).
The extra tax applies to anyone, whether you are resident or non resident, who is buying additional residential properties, for example a buy-to-let or holiday home, within England, Wales and Northern Ireland. As Scotland (a devolved power in terms of property) announced a similar 3% surcharge in its own Budget, it applies to the whole of the UK. To see the official guidance please download the following :-
We have set out below the response to some of the most frequently asked questions
What if I am replacing my main residence?
If the home you are buying directly replaces your main residence, you will NOT have to pay the 3% surcharge, even if you own an additional home/s at the same time. This example is straight from the Government's consultation document:
"A owns both a main residence and a second home. She sells her main residence and purchases a new one. Although she has two properties at the end of the day of the transaction, she has replaced her main residence so the higher rates will not apply."
Rented accommodation however, does NOT constitute a main residence as your previous main residence will need to be disposed of (ie, sold) to escape the surcharge. Gifting a property DOES constitute disposing of your main residence, according to the Treasury.
What if I need to buy another main residence before I can sell my last one?
If you buy a new main residence (Home A) but are either unable to sell your previous one (Home B) or you just choose to keep it and rent it out, you will have to pay the 3% Stamp Duty surcharge initially. However, so long as you sell Home A within 36 months of completing on the purchase of Home B, HMRC will make a full refund.
What if the home I already own is abroad?
You're liable to pay the 3% surcharge even if the home you already own (or part-own) is abroad. So, if you have a holiday apartment in Spain and are buying your first home in the UK, you’ll have to pay the 3% additional tax.
What if the second home I am buying is not in the UK?
If the second home you are buying is abroad, the purchase and related costs will fall under the buying laws of that country, so neither Stamp Duty nor the 3% surcharge will be relevant.
How is the extra tax charged?
Since the end of 2014, regular Stamp Duty has been charged as a tiered tax. This is like income tax, where you only pay the higher rate on the slice above any threshold. However, the 3% surcharge still works as a slab tax which means it applies to the entire purchase price of the property.
As an example, if you are buying a second home that costs £300,000, the extra 3% Stamp Duty would equate to £9,000, or 3% of the entire price. If you add that onto the £5,000 regular Stamp Duty bill on a home of this value, you’d end up paying £14,000 in total.
What if I am buying a second home for my child?
If the second home you are buying is for your child and you already own a home, you will be liable for the 3% surcharge if your name is on the property deeds - even if it’s joint with your child’s name. If you bought the home for your child outright and just their name was on the deeds, the 3% surcharge would not apply.
What if I am buying with a partner who doesn’t already own?
If you have a second home and you are buying jointly with your partner who doesn’t already own, the 3% Stamp Duty surcharge will still apply.
Just as if you were buying for your child, you may be able to escape the surcharge here by putting the property entirely in the name of the person who doesn’t already own a home.
Ray Boulger, senior technical director at mortgage broker, John Charcol, said: “If you can’t satisfy the lender’s affordability criteria in just one person’s name, some lenders such as Metro Bank and The Woolwich, will allow you to put two names on the mortgage, and just one the property deeds.”
However, if you were planning on doing this and you already live with your partner, HMRC’s tax avoidance provisions are likely to catch you out.
What if I am buying a property with a ‘granny annexe’?
The 3% surcharge only applies if the annexe is a separate dwelling that is valued at more than £40,000 and could be bought as a main residence.
The Treasury says: “To be a separate dwelling, the unit will have all the facilities one would expect in a home, including, for example, a kitchen, bathroom and bedroom. It should also be capable of a separate sale.”
What if I sell my main residence but I'm not able to buy another one straight away?
On the flipside, you may have to sell your main residence and move into an interim property (rented or with family for example) before you can buy your next one. In this case, you will have 36 months (after completing on the sale) during which time you can buy a new main residence without being hit with the surcharge.
What if I inherit a property?
No Stamp Duty is payable on properties that are inherited, so the 3% premium is not relevant. However, if you have inherited a property and go onto purchase a second home without selling it, you will be hit with the surcharge.
What if I am a professional landlord?
You will be liable for the extra tax.
Can I set up a limited company to avoid the surcharge?
The Government has a keen eye on preventing tax avoidance. So you won't be able to escape it by setting up a limited company and buying an additional home that way.
Are there any exemptions?
You won’t pay the 3% surcharge on second homes that cost under £40,000. Caravans, mobile homes and houseboats are also exempt. It's also worth bearing in mind that if you are charged Capital Gains Tax on any profit you make on the sale of an additional home, the 3% surcharge can be offset against the gain liable to tax.
Can I just omit to tell my solicitor about the fact I already have a property?
Solicitors and property lawyers are under instruction to ask buyers outright if they already own another property. If you don’t answer truthfully it’s tantamount to fraud and potential penalties could be a lot worse than meeting the cost of a 3% extra Stamp Duty.
© Thandi Nicholls Ltd 2017 All Rights Reserved - The above article is provided for guidance only and may not cover your personal circumstances so you should not rely on it. It is important that you seek appropriate professional advice which takes into account your personal circumstances where you can provide the full facts of the case and all documents related to your case. Thandi Nicholls Ltd t/a uklandlordtax.co.uk, K Nicholls FCA or S Thandi cannot be held responsible for the consequences of any action or the consequences of deciding not to act.