Sticky problem with stamp duty
ARE STAMP duty land tax (SDLT) charges hitting the wrong target? The introduction of a three per cent increased SDLT rate was intended to “redress the balance between those who are struggling to buy their first property and those who are able to invest in additional properties”. The increased rate was specifically aimed at those people with second homes and buy-to-let properties.
According to the London School of Economics and the VATT Institute for Economic Research, removing SDLT altogether could increase the rate of home moving by 27 per cent and, while there are several factors in play, it may even be that the increase in the rates of SDLT has made it harder, not easier for first-time buyers, as second home owners may be discouraged from selling.
WHAT ARE THE DETAILS?
SDLT on purchasing second residential properties (outside Scotland) costing £500,000 has increased from £15,000 to £30,000 and for properties worth £2 million it has gone from £153,750 to £213,750. For Scotland, there are corresponding higher differential rates for land and buildings transactions tax (LBTT). Some of the less-obvious circumstances now affected include:
people moving to the UK and pur- chasing a home here when they already own a residential property overseas
couples purchasing a new home who get married, where one or both have another property they will keep
a parent buying a first home for an adult child where the parent has an existing property and retains an interest in the child’s new property, however small
a parent buying residential property in a minor child’s name where the parent/spouse already owns property
properties where there is more than one dwelling being acquired, except in very limited circumstances
unmarried couples who buy as joint tenants, where the rules would result in a higher charge for either or both if they already own residential property
Property lawyers now check if a buyer is aware of and can afford the higher than expected SDLT and LBTT charges at a far earlier stage than before.
With the significant additional cost, these charges are becoming a deal-breaker for many, requiring them to renegotiate or even withdraw from a purchase.
WHAT IF I BUY A PROPERTY BEFORE I SELL MY MAIN RESIDENCE?
If an existing main residence is sold within three years of acquiring a new property, the buyer can reclaim the additional SDLT/LBTT cost incurred as a result of the new place being, albeit temporarily, a second home. However, this will have an impact on cash flow, requiring the higher charge to be paid upfront, which could also become a deal-breaker in some circumstances.
Also, in situations where a buy-to-let property is already owned, if the new property replaces a main residence that was sold within the three years before the acquisition of the new property — for example if you rented your main residence for a couple of years — then the higher SDLT rates may be avoided.
Whether the UK government has successfully used SDLT/LBTT rates to help first-time buyers compete against the buyers-to-let is up for discussion.
But in the meantime, the SDLT (and LBTT) rules become more complex and can place additional burdens on buying residential property for those individuals who were not the original intended target.
Adrian Benosiglio is real estate tax partner at RSM
020 3201 8694, rsmuk.com