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Stamp Duty Land Tax (SDLT) 3% Surcharge

Posted on 01/09/2016 at 09:59

Clients will be aware that, with effect from 6th April 2016, a 3% SDLT surcharge will apply on purchases of “second homes and/or buy to let properties”.

However, the detailed rules are complex and contain a number of pitfalls including the following:

  1. If a new family home is purchased but the former main residence is retained, then the SDLT 3% surcharge will apply to the purchase of the new main residence. The SDLT surcharge can be reclaimed if the former main residence is sold but only if the sale of the former main residence takes place within 36 months of the purchase of the new main residence.
  2. If an individual, living in rented accommodation or with parents, already owns a buy to let property, then purchases a new main residence, then the 3% SDLT surcharge will apply to the purchase of the new main residence.
  3. When two individuals who already own separate residences, agree to marry or live together and purchase a new main residence, then, unless both previously owned properties are sold at the same time on or before the purchase of the new main residence, then the SDLT 3% surcharge will apply to the purchase of the new joint main residence. This is subject to the possibility of selling both of the old main residences with 36 months, in which event the SDLT surcharge of 3% on the new main residence can be reclaimed.

Circumstances in which the 3% SDLT Surcharge Will Not Apply

The SDLT 3% surcharge will not apply in the following sorts of circumstances:

  1. Purchase of a property which is not residential property, thus, purchase of a buy to let commercial property will not attract the 3% SDLT surcharge.
  2. Transactions under £40,000 will not bear the 3% SDLT surcharge.  There must be very few residential property transactions under £40,000.
  3. The Purchase of a First Property – Where no other property is owned for instance, an individual (or a married/cohabiting couple) who do not own any other property whatsoever could purchase a main residence or buy to let residential property and would not suffer the 3% SDLT surcharge.
  4. Replacement of the Former Main Residence – An example here would be a couple with a main residence and a portfolio of buy to let properties, who sell the former main residence an buy a new main residence, with completion taking place on the same day. The SDLT 3% surcharge will not apply because they have replaced the old main residence with a new main residence. Again, if the former main residence is retained, the 3% SDLT surcharge must be paid but can be reclaimed if the old main residence is sold within three years.
  5. Sale of One Property on or Before Purchasing Another – If an individual or couple sell a buy to let property and purchase another buy to let with completion taking place on the same day, then the 3% SDLT surcharge will not apply.

Possible Tax Planning

There can be SDLT planning opportunities.For instance, if a couple currently own a portfolio of buy to let properties but live in rented accommodation, then if they were to purchase a new main residence, they will suffer the 3% SDLT surcharge on the purchase.

However, if the couple, instead, moved into one of the buy to let properties, occupying this as the main residence for a reasonable period of time, before selling this and purchasing a new main residence, the SDLT 3% surcharge on the purchase of the new main residence could be avoided, so long as the former main residence was sold at the same time.

Treatment of Married/Cohabiting Couples as One Unit

It should be mentioned that the SDLT 3% surcharge rules do treat married and cohabiting couples as one unit so that only one property can be the main residence of the couple at any given time.

Forward Planning

Clients do need to be aware that the new SDLT 3% surcharge rules are complex and thus, it is always prudent to consider these rules in advance of any transactions.Clients should therefore contact Paul Craik or John Flanagan in the Tax Department and/or their normal contact Partner concerning these matters.

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