Additional Stamp Duty Land Tax – Are You Liable?
Nowadays many people own second properties, and for many reasons. Here are some examples:
- Your daughter’s marriage has broken down and she can’t afford to take on the matrimonial home herself. You plan to buy it in your name in order to provide a home for your daughter and your grandchildren. You and your husband own your own home.
- You and your wife have not been getting on well and have agreed to live apart. Your wife is staying in the jointly owned matrimonial home with the children. You have decided to buy a flat to live in. You are not separated under a court order and there is no deed of separation executed under seal.
- Your civil partner has inherited some money and he is thinking of buying a holiday cottage in the country. You live together in the house you own in your sole name.
Additional SDLT on Second Homes from 1st April 2016
As from 1st April 2016 if your purchase of a property means you end up owning more than one property you may have to pay an extra 3% SDLT. The most important exception to this rule is if the transaction was to replace your main residence.
An important point to remember is that for these purposes married couples and civil partners are treated as a single unit. An exception to the single unit rule is where a couple are separated under a court order or there is a deed of separation executed under seal.
So the question is, does this additional charge apply to you? The answer in respect of the three scenarios above is, I’m afraid, yes. You will have to pay additional SDLT.
However in some circumstances it is possible to apply for a refund. In the second scenario, where the wife remains in the jointly owned home and the husband is buying himself his own main residence, he can claim a refund of the additional duty he paid if the jointly owned former main residence is sold within 3 years. A link to the refund application is below.
I’ve set out some more scenarios below – check them out, they might apply to you.
The calculation
Here are the existing SDLT and the additional rates. You will see that even though existing SDLT doesn’t apply to properties of less than £125,000, the additional rates do.
| 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% |
This means that if you buy a house for £200,000, you pay 3% on the first £125,000, and 5% (that’s 2% plus the additional rate of 3%) on the remaining £75,000.
Are you single, divorced, widowed?
“I’m moving on Friday, selling my house and buying a smaller one. I don’t own any other property. Will the additional rate apply to my purchase?”
You will end up owning only one property, so the additional rate doesn’t apply.
“When my marriage ended I moved in with my elderly parents. I’ve got my financial settlement now but I’ve decided to stay looking after my parents and to buy a flat to rent out to provide me with a bit of income.”
You will end up owning only one property, so the additional rate doesn’t apply to your purchase.
“I’m selling my buy-to-let flat – it was in a Victorian conversion and was nothing but trouble. I’m buying another buy-to-let in a brand new block but I’m still going to carry on flat sharing – I prefer to live in a rented property.”
You will own only one property, so you will not pay the additional rate.
“At long last the financial settlement has come through from my divorce. I’ve already bought a house to live in, and so I’ve decided to invest my lump sum in a buy-to-let.”
As you will own two properties and you haven’t replaced your main residence the additional rate will apply to your purchase.
“I own a house which I live in, but I’ve also got a buy-to let. I need to move nearer my work and so I am selling my house and buying another. Will I have to pay the extra 3%?”
No. Although you will end up owning two properties, you are replacing your main residence so the higher rates will not apply.
“I’ve lived in this house for years. I’ve decided to move to the country but I’m not selling my old house – I’m going to rent it out instead.”
As you will own two properties and you are not replacing a main residence (as you are not selling your previous main residence), the higher rates will apply. But if you sell your old house within 3 years you can apply for a refund (there is a link to the refund application below).
“Years ago I bought a buy-to-let flat. I’ve still got it. In the meantime I’ve moved around a lot and have lived in rented properties myself. The time has come for me to buy my own place. Will I have to pay the higher rate on my purchase?”
As you will be owning two properties and you have not replaced a main residence (you don’t have a previous main residence to sell), the higher rates will apply.
“I own seven properties which I rent out. I’m selling the house I live in and buying a replacement.”
You will own eight properties – your seven buy-to-lets, and your new home. But you will not have to pay duty at the higher rate as you are replacing your main residence.
Are you married or in a civil partnership?
Don’t forget, as I mentioned above, that married couples and civil partners are treated as one unit.
“My civil partner and I live in town in our jointly owned home and have decided to buy a weekend cottage. Will we have to pay the extra 3%?”
Yes. You will own two properties, and your purchase isn’t to replace your main residence.
“My husband and I have two properties. We spend a lot more time in the one in London, but we do go to the cottage in Norfolk regularly. We’re not sure how this extra 3% might apply to us in the future.”
If you sell your main residence in London and purchase a new main residence, you will not have to pay the higher rate even though you will own two properties.
However, if you sell your second home in Norfolk, and purchase another second home, you will have to pay the extra 3% as you will own two properties but not have replaced your main residence.
“Since we married we’ve lived in the house owned by my husband. I have now decided to buy a property and rent it out. Does the additional charge apply?”
Yes, it does. You will own two properties, and the transaction wasn’t to replace your main residence.
“When we entered into a civil partnership we both had our own houses. We decided to live in my wife’s. After a while I decided to sell the house I used to live in and I am buying a property to rent out. Will I have to pay the extra 3%?”
Yes. As civil partners you own more than one residential property and are not replacing your main residence.
Are you married, or in a civil partnership, but separated?
“We’re still married, but we are separated under a court order. We always lived in a house owned by my wife in her sole name but I’ve moved out. I am now buying myself somewhere to live. Will I have to pay the additional rate?”
No. If you are separated under a court order, or deed of separation executed under seal, any property that your wife owns isn’t counted.
“We recently decided to separate and my husband has remained in the jointly owned property. I am now buying myself somewhere to live. Does the extra 3% apply to my purchase?
Yes, it does, as you jointly own a property with your husband. But if the jointly owned former main residence is sold within 3 years you can claim a refund of the additional duty you paid. A link to the refund application is below.
What about buying property with someone who already owns a property jointly with someone else?
“I own my house jointly with my friend, Ted. We’ve lived under the same roof for years. I’ve decided to buy a buy-to-let property in my sole name. Will I have to pay the extra 3%?”
Yes. You will own two properties, and won’t have replaced your main residence.
“Two friends, Sheila and Tamsin, have decided to buy a house together to live in. Tamsin has never owned a property before but Sheila already owns another house which she is not selling. Will they have to pay the extra duty?”
Yes, because Sheila will own two properties and is not replacing a main residence. The higher rate will apply to this purchase.
What about buying a property for your children?
“My parents own a house together, and they are buying me a house to live in.”
The higher rates will apply as your parents will own more than one property, and aren’t replacing their main residence.
“My mother owns her own home. She is guaranteeing the mortgage on my first home.”
She will own only one property, so the higher rates will not apply .
Buying a new main residence? The 3 year rule
If you have to pay additional SDLT because you haven’t sold your old main residence, if you sell it within 3 years you can claim a refund (there is a link to the refund application below).
Alternatively if you already have 2 or more properties, and you sell your main residence, you won’t have to pay the higher rate if you buy a new main residence within 3 years.
“A couple in a civil partnership, Keith and Tony, have decided to buy a new house to live in, but they haven’t sold their old house yet. As they now own two properties, the higher rate applies to the purchase. But they plan to sell their old house in a few months time.”
If they sell their former main residence within 3 years of purchasing the new residence they will be eligible for a refund.
“Suzie and Cathy are buying a property jointly as their main home together. But Suzie already owns a house – it’s where she used to live, and she’s not selling it. This means the higher rate will apply to the purchase. She plans to sell her old house eventually. Will she be eligible to a refund?”
Yes, Suzie will be eligible to a refund if she sells her former main residence within 3 years of purchasing the new main residence.
“I own a buy-to-let and I’m buying a house to live in. I realise the higher rate will apply to the purchase as I will now own two properties. But I’m going to sell the buy-to-let in a few months time. Will I be able to apply for a refund?”
No. You aren’t selling a previous main residence.
“Kenny and Jackie own a couple of buy-to-lets as well as their main residence. They are moving abroad for work for a couple of years where they will live in their employer’s property and so are selling their main residence in the UK. When they get back to the UK they will want to buy somewhere to live. Will they have to pay extra duty?”
No, as they will be replacing their main residence within 3 years.
Are you a global property owner? Do you already own a property anywhere other than England, Wales or Northern Ireland?
If you already own property abroad, you might be caught by the new rule.
“Phil lives in the house he owns in Scotland. He is buying a weekend home in England.”
He owns two or more properties globally and is not replacing his main residence. He will pay the higher rate.
“I live in a house I own in France. I’m selling up and moving back to England. Will I have to pay the extra 3%?”
No. You will only own one residential property globally so the higher rates don’t apply.
Have you inherited property?
“Fiona inherits a property. She already owns her own home so she decides to sell the inherited property and buy a buy-to-let flat. Will she have to pay the additional duty?”
Yes. As Fiona will own two properties she will have to pay at the higher rate on the purchase.
“Jenny is about to buy her first home when she unexpectedly inherits a small share of her late uncle’s property. Will she have to pay at the higher rate when she buys her first home?”
No. A small share (50% or less) in a property inherited within 3 years of the purchase will not be taken into account.
Properties purchased for less than £40,000
“Stephen owns and lives in a house, and decides to buy a holiday home for £30,000. Does he have to pay the extra 3%?”
The higher rate is not payable as the price is less than £40,000
SUMMARY
- Always seek expert legal advice about the potential impact of SDLT before buying a property
- Many second home owners will now have to pay an extra 3% SDLT
- If you are buying a property and the transaction increases your ownership of property to two or more, you will have to pay extra duty unless you are replacing your main residence
- Don’t forget the 3 year rule for replacing your main residence. You may become eligible to a refund. Timing is critical. If in doubt seek advice
- Married couples and civil partners are treated as a single unit
- If you are separated as a result of a court order, or deed of separation executed under seal, only properties you own in your sole name, or jointly with others, are counted
- If you own property abroad, this is included in totting up the number of properties you own
- The rule doesn’t apply to property which costs less than £40,000
- There is an exemption in respect of small inheritances, 50% or less of a property inherited within 3 years.
- Stamp duty land tax is a complicated subject – if you have any doubts make sure you take expert advice
- Different rules apply to purchases of properties subject to leaseholds
- Different rules apply to multiple purchases on the same day
- Different rules apply to purchases by companies and trusts
- Transitional arrangements apply where contracts were exchanged before 26 November 2015.
The topics covered in this blog post are complex and are provided for general guidance only. If any of the circumstances mentioned in this blog might have application to you, you should seek expert advice.
Link to Guide on the gov.uk site
Link to application for refund on the gov.uk site
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