On 28th December 2015, the Government published a consultation on the new higher rates of Stamp Duty on purchases of additional residences. The full consultation is available here and provides a greater level of detail on who will be required to pay and how the new rate will be levied. The additional rate was announced by the Chancellor at the Autumn Statement on 25th November. The consultation, which covers policy design and operation as well as its administration by HMRC, closes on 1st February, with the final policy to be confirmed at Budget 2016 on 16th March.
HBF will be submitting a response and we would welcome your views on the specific questions posed in the Treasury document, as well as more general views on the likely impact on your business and the market more widely because, in addition to answering the technical questions posed, we would like to raise with HMRC and Treasury the wider effect on new home building and the housing market of recent measures aimed at reducing potential returns for buy-to-let purchasers.
As announced at the Autumn Statement, the new higher rate of Stamp Duty Land Tax (SDLT) on second homes or investment properties will apply to additional residential properties purchased in England, Wales or Northern Ireland on or after 1st April 2016. The rate will be 3 percentage points above existing SDLT residential rates.
At the time of the Autumn Statement, in an effort not to discourage institutional investment in the private rented sector or prevent investment that increases supply, the Chancellor confirmed that large scale investors would be exempted from the higher rates. The Treasury’s initial thinking on how best to achieve this was to exempt corporates and funds with existing portfolios of 15 properties or more. It is now also considering an approach which would exempt individual investors purchasing in bulk at least 15 properties.
The Stamp Duty treatment of non-residential property purchases will remain unaffected.
Where contracts were exchanged on or before 25th November 2015, even if the legal completion date falls after 1st April, the transaction will not be liable for the higher rate of SDLT.
Existing residential rates
New rates for additional properties
£0 - 125k
£125 - 250k
£250 - 925k
£925k - £1.5m
For example, an additional property purchased for £300,000 under the existing regime will currently be liable for £5,000 in Stamp Duty. Under the post-April system, the same purchaser will be required to pay £14,000 in Stamp Duty, broken down as per below:
3% on the first £125k = £3,750
5% on the next £125k (125-250k) = £6,250
8% on the remaining £50k (£250-300k) = £4,000
When will the higher rates apply?
The general rule is that if a purchaser ends the day that the legal completion takes place with more than one property in his or her ownership, and has not simply replaced their main residence, then they will be required to pay SDLT at the new higher rate. A flow diagram is presented in the consultation document explaining the broad approaches in different cases (Section 1.1).
Owners of one property
Anyone who owns just one property, irrespective of whether this is owner-occupied or let out, will not have to pay the higher rate.
Purchasing or replacing a primary residence
If a purchaser is replacing their primary residence, irrespective of whether they own other investment properties, the buyer will not have to pay the higher rate. In cases where buyers sell their existing main residence and purchase a new one on the same day, this is dealt with simply as the buyer has replaced their main residence and ended the day with the same number of properties as he or she began it with.
The purchaser will be considered to be replacing a main residence if a primary home has been sold in the 18 months prior to the transaction. If this can be shown then the higher rate will not apply. On the other hand, where there is a delay in selling the current main residence, the buyer willpay SDLT at the higher rate. However, if the previous main home is subsequently sold within 18 months, the additional Stamp Duty paid can be recovered through a refund from HMRC. The Government is seeking views on other cases where this refund mechanism may be utilised, other means by which the cash flow impact of temporarily owning two homes can be mitigated and any further issues around main residences which could be flagged.
HMRC’s process for determining what constitutes a main residence is discussed in more detail in the consultation document (Sections 2.8 to 2.11)
If a purchaser of a buy-to-let property already owns a main residence or another rental property then they will pay SDLT at the higher rate.
Married couples and joint purchasers
Married couples will be treated as one unit and any other properties owned by either partner will be taken into account when assessing which Stamp Duty rate will be paid. For people purchasing a home together who are not a couple, the same rules will apply and if any additional property is owned by either purchaser then the higher rate will apply to the entire transaction.
Treatment of large scale investors
In structuring an exemption for large scale investors, the Government aims to ensure that “it is narrowly targeted to apply only to those purchases of additional properties which significantly contribute to new housing supply”. The document states that small scale individual landlords who are more likely to be in direct competition with first-time buyers should not be exempted. However, since the initial announcement was made the Government has acknowledged that “there may be circumstances where significant investment by individual purchasers may positively contribute to development… and so… it may be justified to exempt purchases made by individuals from the higher rates.” The Government is therefore considering alternatively designed exemptions based on the size of purchase rather than the existing portfolio of the buyer/s. Specifically, the consultation ponders whether the exemption should be triggered in event of the buyer already owning 15 properties, or upon the purchase of 15 residential properties (Question 14, Section 2.19).
The Government is proposing a change to the current SDLT return form to introduce a new category of property – ‘Residential – additional property’ which would sit alongside the current categories of residential property, non-residential property and mixed.
Home Builders Federation
London, SE1 9PL
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