Stamp duty tax shock

Will Stamp Duty Land Tax give you a nasty shock? David Webb, Director at Bulley Davey hopes not!

In April 2016 the Government introduced a supplementary Stamp Duty Land Tax (SDLT) of 3% of the purchase price of a property, over and above the normal SDLT charge, for the purchase of a second residential property. It seems simple enough. Own a house, then decide to buy, say, a holiday cottage or rental property that costs for example £250,000, and you will pay an additional 3% SDLT of £7,500 on the purchase price. The intention is to penalise people buying a second property.

However, because of the wording of the legislation, there are a number of complications to keep an eye on. For example, it only takes one of the purchasers to have a second property for the additional SDLT charge to apply, and the original property doesn’t even need to be in the UK! I recently came across the case of a young man buying his first house who was told that he needed to pay an additional 3% SDLT amounting to £20k because his name had been included on the purchase of a family holiday cottage when it was bought a decade ago. Even simple acts of timing could catch you out.

Many people buy their new house before selling their old one. Because the new house is technically their second residential property, the extra 3%is charged on this. Thankfully in this case, if you subsequently sell the original house within three years of the purchase, you can then reclaim the additional SDLT from HMRC. This must be done within three months of the sale, or one year of the purchase of the new property if later. Finally, a number of buy-to-let clients have decided to transfer rental properties into joint names with their spouses, if the spouse pays tax at lower rates. This is fine for SDLT if there is no mortgage on the property, but if there is the spouse is then considered to have taken on half of the mortgage in payment for the gift of the property, so SDLT is payable based on the half share of the mortgage taken on.

So what’s to be done? My first piece of advice is to contact your accountant! But also be aware of the fact, as mentioned above, that if you sell your original private residence within three years of purchasing a replacement, you only normally have three months to claim back the SDLT paid on your new residence. I would advise getting your solicitor to sort out the reclaim for you at the same time as dealing with the sale of the previous residence. Those who have already paid the extra SDLT should be aware that from 26 November you will only be able to claim relief from the extra SDLT tax if you sold your previous private residence within the three years prior to the purchase of the new one.

On a purchase before then, you can claim relief on the sale of your previous private residence at any time. So someone who sold their private residence a number of years ago, and who has subsequently been living in rented accommodation or lives abroad does not have to pay the 3% on the purchase of a new private residence before 26 November, even if they own a number of other rental properties. After that date, however, they would only be able to claim the relief if their previous residence had been sold within the three years prior to the purchase and they had lived in the previous residence within the last three years that they had owned it. Like most tax matters, these things are never quite as simple as they seem!

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