Stamp Duty Land Tax, or SDLT, is a significant cost when budgeting for a new house or flat; it is now even more so for many buyers. Since April 2016, unless replacing the main residence, buying a residential property when property is already owned (even abroad or, in some cases, just a share) SDLT is payable on the price paid at a rate 3% higher than the normal residential rates. To put the tax in context, on a property purchased for £275,000 the SDLT at the higher rates will be £12,000 rather than £3,750.
The government’s rationale for introducing this supplemental rate of SDLT is to address increases in UK house prices that the government considers are in large part due to buy-to-let landlords and wealthy foreign investors. Consequently, one of the main drivers behind the increased rates is to rebalance the UK housing market to enable home ownership for UK residents. However, there are situations where the new supplemental rate applies that some buyers may not be aware of, particularly to joint buyers and married couples.
Joint buyers – rules for joint buyers are such that if either buyer has two or more residential properties, and is not replacing a main residence, the higher rates of SDLT will be payable on the whole of the purchase price.
Helping your children – it is becoming increasingly common for parents to help their children buy their first home. If they do not wish to make an outright gift of the money they may decide to own a share in that property. If the parents already own a residential property, for example, the family home, then they should be aware that the purchase of their son’s or daughter’s property will be subject to the higher rates of stamp duty land tax. Because of the joint buyer rules, the higher rates will be payable on the whole of the purchase price and not just the amount put in by the parents.
Married couples and civil partners – provided they are living together are treated as one ‘unit’ for the purposes of determining whether an “additional residential property” is being purchased. So even if only one of the couple is buying a property, the property owned by the other will be taken into account. By way of example, if a husband owns the house in which he and his wife live, and the wife invests in a buy-to let flat in her name only, the flat will be liable to SDLT at the higher rates because as a married couple all the property owned by either party is treated as owned jointly and the flat will be an additional residential property for both of them.
Curiously, the same rule does not apply to cohabiting unmarried couples.
Whether or not you think the new SDLT Rules affect your sale or purchase we would always recommend taking informed legal advice when buying a property, in any circumstance. The rules are complex and important to get right or you could end up making a costly mistake.