Changes to the second home Stamp Duty Land Tax surcharge
The additional 3% Stamp Duty Land Tax surcharge payable on all ‘second homes’ came in to force on 1 April 2016. The surcharge is payable where you are an individual purchasing a property for more than £40,000 and you or your spouse/civil partner already have an interest in another property (anywhere in the world). Exceptions include:
- Where the property is subject to a lease with more than 21 years remaining i.e. where you are buying a ground rent freehold; or
- Where you are purchasing a lease with less than 21 years remaining on the lease i.e. short lets.
Sadly, for many the surcharge is set to remain but changes will come into force this November concerning the circumstances in which you can reclaim the surcharge.
Currently, you do not have to pay the surcharge where you purchase a new property to replace your main residence – regardless of how many properties you have in your portfolio. This applies whether you sell your main residence first and then purchase another or vice versa, although if you purchase first you will have to claw back the surcharge once you have sold your main residence.
In simple terms, to claw back the surcharge:
- you must intend for the new property to be your home on the date of the purchase;
- you must have disposed of a major interest in another property which was your home; and
- at no time between the sale and the purchase could you, your spouse/civil partner buy another property with the intention of it being your home.
From 26 November 2018, a “three year rule” will apply, which means that the property must have been your home and the disposal must have taken place within the three years prior to your purchase. Currently there is no time limit. This tightening of the rules will limit the ability of many to claim.
Please be aware though, that a disposal does not necessarily mean a sale. A disposal can be a gift or a transfer as part of a divorce settlement.
The HMRC guidance on the changes is still not crystal clear and there are likely to be other instances where you can be liable for the SDLT surcharge even where, for example your spouse’s child from a previous marriage has a major interest in a property!
What is clear is that the legislation remains a minefield and it is important to get the correct advice from the outset so that you can budget correctly. If you own more than one property, have sold your main home more than three years ago and you’re thinking of buying a new property as a replacement, you will have to think about acting soon to avoid the SDLT surcharge. Even if it is in the last three years, with the new changes coming in less than six months time now is the time to start planning.
You can also contact one of our other solicitors in the residential property team here.