Potential Increases in SDLT on Second Homes

It is hard to believe that, already, we’re only six weeks away from Easter which falls very early this year.  In fact there was only just over a week between the end of what was for many “dry January” and the start of Lent!

Traditionally, January is the quietest month of the year for Solicitors. Lots of transactions complete in December and it is several weeks before things start moving again.

This year has been an exception.  We have opened far more files than at this time last year and the feedback that we are getting from clients is that other sectors are busy as well so  2016 looks like being a busy year.

The property market in particular is forging ahead. There is perhaps one cloud on the horizon and that is the proposed introduction of higher rates of Stamp Duty Land Tax (SDLT) on purchases of additional residential properties. This was announced in the Autumn spending review. The proposals are now under consultation but are expected to be confirmed and become effective from 1 April 2016.

There is a risk of having to pay SDLT at a higher rate if, at the end of the day of the purchase the buyer will own two or more properties.

However, if the property being purchased is replacing a main residence that is intended to be sold but which has not yet been sold then whilst the higher rate will be payable on the new property a refund is available if the previous main residence is sold within 18 months.  In other circumstances the purchase of the new property will be subject to higher rates.
The existing and additional SDLT rates are as follows:-

Band          Existing residential SDLT rates              New additional property SDLT rates

£0* – £125k                    0%                                                                           3%
£125k – £250k                2%                                                                           5%
£250k – £925k                5%                                                                           8%
£925k – £1.5m                10%                                                                        13%
£1.5m                               12%                                                                        15%

It is difficult to predict how these changes will affect the property market. It may mean that investment buyers make lower offers that take account of the additional liability but property prices are increasing quickly at the moment so it is unlikely that it will affect,significantly, the number of transactions or cause prices to fall back.

Having said that, the extra amount of tax is quite significant.

By way of example, if a residential property is purchased for £200,000 as a main residence then SDLT of £1,500 will be payable.  If the same property is bought as a rental property then SDLT will be £7,500.

This news item is intended to be for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.