3% Stamp Duty Land Tax (SDLT) Surcharge For Second House Purchases


Simon Misiewicz

18th January 2016

By Louise Misiewicz

Do you own a property already that is either your home or an investment? Are you thinking about purchasing another one?

Are you thinking about purchasing another one?

Do you have investment properties but you live in rented accommodation?

SDLT 3% surcharge from November 2015

There are many property investors who are buying properties below the lower SDLT threshold of £125,000 so that they can avoid paying any SDLT on their purchases.

However, times are changing and while the scaled SDLT charges applies for anyone buying their first property, anyone buying a second residential property will soon have to pay an additional 3% on any residential property with a value of £40,000 or more. Please note that the 3% extra SDLT is in addition to the SDLT rates set in my previous article and is based on the full amount of the property.

For example, if you already have one house, which you do not intend to sell as part of the transaction, you make will incur the additional 3% SDLT. This will inevitably increase the cost of buying a property and decrease the return on investment (ROI).

Who is affected by the 3% SDLT surcharge?

The government announced the new charges from November 2015 (from their Autumn Statement). Lets look at the scenarios that will result in the 3% SDLT surcharge:

  • Buying a second home as a holiday home
  • Buying a new property investment
  • Buying a home for the first time if you a property investment

If you sell your own home and buy another home, you will not have to pay the additional 3% on that property. However, if you will pay the 3% SDLT surcharge if you do not sell your home as part of the transaction. You can have the 3% SDLT surcharge refunded back to you from HMRC if you sell your first home within three years of buying the new home.

You should have noted that the last bullet point shows that the 3% surcharge when you buy a new  home even if you are currently in rented accommodation. This seems wrong to me but we have to work within the law. However, the three year clock does not start to tick until November 2018. So, you would not need to pay the 3% SDLT surcharge if you previously owned a home (which you lived in).

The higher rates will affect properties that exchange after 25th November 2015 (when the change was announced), where completion takes place on or after 1 April 2016.

Are there ways around this?

  • Parents buying properties for their children can set up trust structures so the child is a beneficiary of a trust, meaning they won’t have to pay the extra tax.
  • Landlords who expect to miss the deadline but don’t want to abandon the sale are negotiating with sellers to arrange to split the extra tax cost between them.
  • Investors who complete transactions now to beat the tax change are allowing sellers to stay living in the property until they find a new home.
  • Move into one of your property investments and announce that it is your primary residence/home. This may then be sold in the future once you are tired of the property. This will have two benefits 1) you will reduce Capital Gains Tax (CGT) on the asset disposal and 2) mitigate the 3% SDLT charge. Please remember to change the mortgage before moving back into the property.

How much will it cost?

If you buy a property for £90,000 then you will pay 3% on the £90,000 and will therefore this will cost you £2,700 in SDLT.

If you purchase a property for £300,000 the new SDLT implications are a lot more significant.

Normal SDLT

£0 (£0 – £125,000 at 0%)
£3,750 (£125,000 to £250,000 at 3%)
£3,750 (£250,000 to £300,00 at 5%)

This gives rise to a SDLT charge of £7,500

Additional SDLT

£9,000 = (£300,000 at 3%)

Total = £16,500

You can see from this example how a property valued at £300,000 will now be liable to a SDLT charge of more than double the normal cost if it is a second property.

Next steps

If you want to understand how this tax change applies to you or to discuss other finance/tax questions, then please book some time with us using the below calendar:

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