Turner Little Ltd look at details of the new higher stamp duty tax which will be applied to “additional residential properties.”
The UK government has now published details of the new higher stamp duty tax which will be applied to “additional residential properties.” This, only three months before it comes into effect.
Chancellor’s announcement
In the autumn statement, UK Chancellor George Osborne announced that anyone buying a property in addition to their main residence would have to pay 3% more in stamp duty from 1st April 2016. This applies to properties such as a second home in the country, or a buy-to-let investment property. The Treasury opened a consultation on the proposals only last week and the consultation will run until 1st February 2016. The new rules will then be confirmed in the budget on 16th March 2016.
These changes could penalise married couples and parents, grandparents, aunts and uncles who want to help their children or kin onto the property ladder. James Turner of Turner Little commented that “The surcharge could increase the cost of buying a second home significantly and reduce the appetite for buy-to-let and holiday home purchases. Due to its timing there could be a rush by lots of people looking to complete before April.”
Effects of changes
All additional properties costing £40,000 or more will be subject to the new levy. The stamp duty bill on homes worth up to £125,000 will be 3% (currently 0%) and 5% instead of 2% for the next band up to £250,000. For the higher bands, the rates will be 8% up to £925,000 and 13% up to £1.5 million. Above that it is a top rate of 15%.
An extra home bought for £125,000 will trigger a stamp duty bill of £3,750 (3%) compared with nothing today. At the next level it could be up to £12,500 extra on a £250,000 property, compared to £5,000 today and at £900,000 would trigger a stamp duty bill of £62,000, compared to £35,000 today.
Purchasing additional property
More worrying still, the taxman will decide whether a purchase is an additional property or not. He will do so by checking details such as where the buyer works, where the buyers’ children go to school and where they are registered to vote. The higher rates will not apply in Scotland, which has its own “transaction tax” system and mobile homes, caravans and houseboats will be exempt.
If you buy a new home but have not yet sold your current one or the sale of your current one falls through, then you will have to pay the extra duty. However, the proposals indicate that you will be able to claim a refund providing your original home is sold within 18 months.
If you complete a sale that’s currently pending or intended purchases before 1st April 2016, the new rules will not apply. Completion by that date is essential however, and exchange of contracts itself is not sufficient. There is an exemption and that relates to exchanges which took place before 25th November 2015, the date of the autumn statement. Even if you complete in these cases after 1st April 2016, you will not have to pay the extra tax.
Breaking it down
If you have a home abroad and want to buy another one in the UK, the one here will be counted as an additional home and you will be taxed accordingly. If you want to help your child onto the property ladder, as long as the property is held in the name of your son or daughter, and it is their only home, the standard rate will apply, even if you helped with a deposit or are a guarantor on the mortgage. If it is bought in your name, or even jointly with your child, then it will incur the extra stamp duty.
Married couples will be treated as a single unit, so they will not be able to avoid the higher tax by each owning a home. Unmarried couples will be able to have a property in each name, but both must be “main residences” so they will have to live separately to avoid the extra tax on a second home.
Turner Little
Turner Little was founded in 1998 and it has since become a well-established UK based professional Company Registration Agents, Registered Bank Intermediaries and Business Consultants, as well as Trust providers.
