As of 1 April 2016, landlords and anyone purchasing a second property within Wales, England and Northern Ireland, may have to pay an additional surcharge of 3% in Stamp Duty Land Tax (SDLT).
Previously, there was no stamp duty to pay until you purchased a property with a value more than £125,000, and even then, this was at a lower rate of 2%.
The new surcharge will come into force for properties with a value of £40,000 or more and will add an additional 3% to each tier of stamp duty.
Who will have to pay this additional surcharge?
The stamp duty surcharge will apply to anyone who buys an additional residential property for £40,000 or more.
This means it will not only be landlords who are solely affected by this change; it is anyone who is purchasing a second property. So, it will include holiday homes and even a residence that you intend to occupy.
You will also be caught up in these changes should you own a share in another property, assuming your share is worth more than £40,000. This is worth keeping in mind if you are purchasing a property with someone who owns a share in another property, as the stamp duty surcharge will be applied to the whole transaction and not just their share.
Also, it is irrelevant where your first property is based as properties throughout the world are considered. So, a £40,000 share in a holiday home in Spain would count as your first property, resulting in your main residence in Wales, England or Northern Ireland being affected by the 3% surcharge.
How is the stamp duty surcharge applied?
Stamp duty is applied to the value of your property on a tiered basis. So, just like with your income tax, the rates are applied via bands.
This means that if you purchased a property for £350,000 you would pay stamp duty as follows:
£0 – £125k – taxed at 0% – no stamp duty
£125k – £250k – taxed at 2% – £2,500 in stamp duty
£250k – £350k – taxed at 5% – £5,000 in stamp duty
TOTAL STAMP DUTY – £7,500
However, the stamp duty surcharge is applied at 3% on the entire purchase price, adding a further £10,500 to the total. This would bring this example to a whopping £18,000 in stamp duty!
What if I’ve bought a new main residence property, but not yet sold my old one?
If you have bought a new home but there is a delay in selling your old one, even though you own two properties at the same time, this will be exempt from the stamp duty surcharge.
HMRC give you up to three years to sell your old home before it is considered eligible for the surcharge. The time limit is there to stop landlords from property hopping but it gives you the time to sell your old home.
Are there any exemptions?
The stamp duty surcharge will only apply to residential property transactions. This means that any property that has mixed residential and non-residential use, such as a shop with a flat above, will be exempt.
If multiple residential properties are purchased in a single transaction, then you may be eligible for partial stamp duty relief. Depending on the type and number of properties purchased, multiple dwellings relief and non-residential stamp duty rates can also come into play.
If you are married or in a civil partnership, you will be treated as a single purchaser unless you are separated under a court order or by a formal Deed of Separation. This means that you cannot own one property each in a bid to avoid the surcharge.
However, if you are buying a property for one of your children, you can avoid the surcharge by having the property in their name, even though you will be financing the purchase