Second home stamp duty surcharge will create problems for trust beneficiaries
HM Treasury has published details of how it will apply the new stamp duty land tax (SDLT) surcharge on second properties.
The draft guidance clarifies that the extra 3 per cent charge applies where a purchaser owns more than one residential property at the end of the day of its purchase, irrespective of the intended use of the property. All contracts entered into on or after 26 November 2015, where completion takes place after 1 April 2016, will be caught, whether the buyer is resident in England, Wales or Northern Ireland or foreign.
An exception applies to properties bought to replace the main residence, provided the original main residence has been sold. The surcharge will, however, have to be paid if the new main residence is bought before the old one has been sold, but the buyer can claim a refund if the old one is sold within 18 months of the new one being bought.
Also it is not clear exactly what the definition of 'main residence' will be. There is to be no right to elect which residence is the main residence for SDLT purposes, so it may differ from that for capital gains tax. HM Revenue & Customs will instead determine it as a 'matter of fact', by 'taking into account' a group of 'factors' set out in the consultation paper.
Cohabiting married couples and civil partners will be treated as a single unit, so that each couple may only own one main residence between them at any one time for the purposes of the SDLT surcharge. Property owned by either partner, or any minor children, will be relevant when determining if an additional property is being purchased or not, so an individual buying a property will be liable for the surcharge if his or her spouse or child has an existing residential property.
A person who lives in rented accommodation, and buys a residential property as an investment, will apparently not have to pay the surcharge. However, the exact meaning of 'rented accommodation' is not yet clear, in particular whether it includes long leases.
Properties bought as furnished holiday lets will be treated in the same way as all other residential properties, in that the surcharge will apply if the property is purchased as an additional property.
HM Treasury has not yet decided how to deal with scenarios where two or more people may own or purchase property jointly. It provisionally proposes that if, at the end of the day of a transaction, any of the joint purchasers has two or more properties and it is not replacing a main residence, the surcharge will apply to the entire consideration for the transaction. However, it recognises that this may not be fair if the purchased property is a first property for one or more of the joint purchasers. It is inviting suggestions on how to deal with this.
The proposed rules may also present some problems for trusts and their beneficiaries. Those who have a life interest or interest in possession (IIP) in a second property will be liable to the surcharge. Peter Vaines TEP of law firm Squire Patton Boggs notes that this is likely to be unpopular with IIP beneficiaries, who may not have the cash to pay it.
Moreover, where there is no IIP in the property, purchases by the trustees will be liable to the higher rates, apparently whatever the circumstances. However, the Treasury considers interests in remainder and discretionary trusts to be too remote or insignificant to be counted as an interest held by the beneficiary.
- As reported in the STEP UK News Digest of 17 December 2015 (see sources below), the Scottish government has announced that its land and buildings transaction tax (LBTT) will be amended to impose a 3 per cent surcharge on the purchase of second homes and buy-to-let properties from April. The change, announced in last November's Scottish Budget, will keep Scotland in line with the rest of the UK.
- HM Treasury
- HM Treasury (Stamp Duty Land Tax)
- Squire Patton Boggs
- FT Adviser
- STEP news story (17 December 2015): Scottish income tax rate unchanged, but additional property surcharge applies
Updated 5 January 2016
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