Second home buyers hit with stamp duty surcharge

Thursday, 26 November 2015

Yesterday's Autumn Statement announced that buyers of 'additional properties' will be charged an extra 3 per cent rate of stamp duty land tax (SDLT) from next April.

The phrase 'additional properties' explicitly includes second homes as well as residential lets. The 3 per cent surcharge will be added to the usual SDLT rate for the property's price band.

With the current top rate of SDLT for individuals acquiring UK residential property standing at 12 per cent, this will result in purchasers paying rates of up to 15 per cent on affected properties, noted Wragge Lawrence Graham & Co. However, the surcharge will not apply to corporates and funds owning more than 15 residential properties.

As Scotland has replaced SDLT with its own Land and Buildings Transaction Tax (LBTT), the 3 per cent surcharge for buy-to-lets and second homes will not apply there.

The measure is expected to raise an extra GBP600-800 million a year for the Treasury, although it is not clear whether this forecast takes account of the possible retreat of small investors from the buy-to-let market, and possible falls in property prices.

'This will be a further nail in the coffin of the buy-to-let market', said Tina Riches of Smith & Williamson. 'Landlords who are not already in the process of reviewing their portfolios will need to do so before long. Those with a large portfolio may wish to consider incorporation and some others may look at furnished holiday lettings.'

'This will undoubtedly have an impact on the property market in London, which is still reeling from the stamp duty changes last year', said James Ward TEP of the law firms Seddons. 'We are likely to see a stampede of transactions before the changes come into effect in April 2016'.

It will also lead to further confusion and complexity, for example over the definition of a second home. Law firm Withers noted that there would be difficulties regarding small overlapping periods of ownership, single properties with separate titles, overseas homes, and the number of homes owned by married couples, or by politicians with one home in Westminster and one in their constituency. 'In whatever way the rules apply, it is likely that they will result in a significant additional acquisition cost for many wealthy foreign and UK individuals purchasing UK residential property', added Wragge Lawrence Graham.

'This government plainly does not like residential property investors', commented BKL Tax, noting that it follows legislation announced in July that will gradually restrict tax relief on buy-to-let loans to the basic rate of tax. 'A period of consultation on the detail is promised, but since the surcharge applies from 1 April 2016 we suspect that the consultation may be a little cosmetic.'

Other measures affecting property investors are:

  • A change in the way capital gains tax is calculated retrospectively to 2015 on non-residents disposing of residential property. This is intended to avoid a double charge linked to the new ATED (Annual Tax on Enveloped Dwellings) regime.
  • From 2019, capital gains tax will have to be paid within 30 days of a property disposal, instead of by 31 January of the next tax year. This is in line with the payment deadline for non-resident investors. The principal private residence exemption from CGT remains unaltered.



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