In recent years, the government has sought to use changes to Stamp Duty Land Tax (SDLT) to influence the residential property market. Most recently it has introduced a higher rate of SDLT for individuals buying additional properties and for all companies buying residential dwellings. The intention was to discourage ‘buy to let’ purchases, which in turn should free up properties for first time buyers. Whether that will be the effect remains to be seen.

Of course, you pay SDLT when you purchase a property, so if you are not thinking about moving at this time this may not seem relevant. However, there are some unexpected nuances to the rules, and thinking about these now may benefit you in the future.

How much is the additional SDLT?
The higher rate is an additional 3% on top of the standard rate of SDLT. If the higher rate applies it is payable on the whole of the purchase price.

When would it apply to me?
The higher rate will apply if the following conditions are satisfied:
• The property being purchased is a major interest in a dwelling;
• The price paid is more than £40,000;
• The property is not subject to a long lease;
• At the end of the day on which the property is purchased you will own a major interest in another dwelling worth £40,000 or more and that property is not subject to a long lease;
• The dwelling is not a replacement for your only or main residence.

In the simplest of transactions, if you buy and sell your home on the same day you will not pay the additional rate. This will be the case even if you own another property, provided the property sold and the property bought are your ‘main residence’. If you have sold a main residence within the previous three years (or at any time if the purchase of the new main residence is before 27 November 2018) then the additional rate will not be payable.

If you purchase a property which will be your main residence before your previous residence is sold, you will pay the additional SDLT but can claim it back when the previous main residence is sold, provided that is within three years.

Owning a property in a company name

The government has sought to discourage the purchase of properties through corporate structures intended to avoid tax by imposing additional taxes on the acquisition, holding and disposal of properties by ‘non-natural persons’.

A non-natural person is a company, a partnership where one of the partners is a company or a collective investment scheme.

Buying
Since 2012 there has been a 15% rate of SDLT for high value properties (payable on the whole purchase price). When this was introduced, the 15% rate was triggered at £2,000,000. In 2014 this was dramatically reduced to £500,000. There are exceptions to this, most notably the property business relief, but unless you fall within this the 15% rate is a huge disincentive to purchasing a property in a company.

Owning
If you already own a property in a company name, Annual Tax on Enveloped Dwellings (ATED) will be payable (subject to some exemptions and reliefs). A return must be filed and there are penalties and interest for late submission or payment.

Selling
In 2013 the government brought properties which are subject to ATED within the capital gains tax regime. This applies to both UK and overseas companies. On completion of the sale of any property which is subject to ATED, capital gains tax will be payable on any gain.

If you are considering purchasing or already hold a property in a company name, make sure that you consult with your solicitor and/or accountant to ensure you take this additional tax into account.

What is a ‘main residence’?
This will depend on the facts. HMRC would look at the whole picture: where you spend your time, where your children go to school, where you are registered to vote and any other relevant circumstances. Consideration should be given to this if you own multiple properties which you occupy from time to time and you are planning on purchasing a new main residence.

What if I own another property but am not replacing my main residence?
You will pay SDLT at the higher rate.

Is there anything else I should know?
The new rules are not straightforward and there are circumstances which may result in you paying the higher rate of SDLT which you may not initially think of. For example:
• Properties owned overseas are taken into account.
• Spouses and civil partners are treated as one entity, so if one of you owns an additional property you will pay the higher rate of SDLT on a subsequent purchase (subject to the above). This will be the case even if one partner owns one property and the other partner owns the other.
• If only one purchaser of several would pay the higher rate, the higher rate would apply. This may be particularly relevant if you are assisting your children with property purchases.
• Be wary of trusts. Depending on how the trust is set up, the beneficiaries may effectively ‘own’ the property and therefore may pay the higher rate on a subsequent purchase. If there is a child who is the beneficiary of a trust, they cannot hold property until they are 18 so the property would be legally held by the parents who therefore may be unwittingly caught by the higher rate.
• Consideration should also be given if you inherit a property (or a share of a property) as you could be subject to the higher rate.

What about companies?
Companies will always pay the higher rate of SDLT. Depending on the circumstances, companies may also be subject to additional taxes in the acquisition and holding of a property.

In conclusion, the new changes to SDLT affect more people than may have first been thought when they were introduced with a flourish by the government as an additional tax on ‘buy to lets’.
If you own more than one property, or are planning on buying an additional property, it is worth considering the new rules and if necessary consulting with your solicitor or accountant to check the position.

essence info

Mundays LLP
Cedar House, 78 Portsmouth Road, Cobham KT11 1AN
Telephone: 01932 590500
Website: www.mundays.co.uk

Profile

Jessica De Noronha, Associate Jessica has extensive experience working with property developers. Jessica acts for both developers and individuals in the acquisition and disposal of development sites by way of option and conditional contract. Jessica has experience in drafting and negotiating planning agreements with local authorities and development infrastructure agreements with local and statutory authorities. She has also acted on plot sales for regional and national house builders and has particular expertise in site set ups and management structures.

Jessica De Noronha can be contacted on 01932 590636 or at jessica.denoronha@mundays.co.uk.