by Charles Oliver BSc MSc FRICS FAAV MEWI FCIArb (Associate Director)
Chancellor George Osborne forewarned of changes to stamp duty on 'second property ownership' in his Autumn Statement in November 2015.
What he outlined was an additional 3% on all property sales that currently attract Stamp Duty Land Tax (SDLT). Seen as a plan to significantly increase SDLT returns it was also viewed as targeting small investors in buy-to-let property and second homeowners.
The government has now released additional information on how the new rules on SDLT will work in practice and announced an open consultation requesting feedback in advance of the 1 April 2016 implementation date.
We now know that after 1 April 2016, SDLT returns will carry a two-stage assessment on property purchases.
• If the purchaser owns just one property at the end of the purchase then there is no additional SDLT to pay
• If the new property is to be the main residence of the purchaser and their other property is being sold, then there is no additional SDLT to pay
• If the new property is the main residence of the purchaser but their 'original' property has not yet been sold, the additional 3% SDLT will be charged but is fully refundable if the first property is sold within 18 months
• If at the end of the day of purchase the purchaser owns, and intends to keep both properties, then appropriate SDLT rates will apply
If the property is a joint acquisition but one of the parties already owns a property then this will be deemed his/her second property purchase and will automatically activate the additional SDLT rule.
Owners of overseas property do not escape the new rules. If they already own a property, no matter where in the world, then purchasing a property in England, Wales or Northern Ireland will constitute a second property and be subject to the new SDLT rates.
There are exceptions to the new rules such as staff accommodation, timeshares, caravans, mobile homes and houseboats, which are all exempt as are non-residential (commercial) properties. One way for investors to avoid the new SDLT rate is to purchase a mixed-use property, such as a shop with accommodation over, as the government has confirmed this will be charged at the non-residential rate.
If a property is purchased on behalf of a beneficiary, for instance by trustees, the new SDLT rates will apply if the beneficiaries have an interest in possession, income or occupation. In more complex cases where beneficiaries do not benefit and are more remote from the property then trustees will be liable to pay the additional SDLT rates.
The government has already announced relief from the additional 3% SDLT for corporate bodies with portfolios of multiple residential properties as well as funds making sizeable property investments. It is currently proposed that an investor with at least 15 residential properties will be exempt from the additional SDLT when purchasing further properties, although final details are as yet unconfirmed.
Currently, relief from SDLT exists for the purchase of particular residential properties by certain categories of purchasers - such as social landlords and charities. The government has confirmed that it has no intention of implementing the additional SDLT on these purchases.
For purchasers of 'larger volumes of properties' it may be possible to avoid the additional SDLT. For instance, buying more than 6 residential properties may be categorised and rated at the non-residential SDLT rate and be capped at 4% - a major saving on the normal residential rate.
No doubt there will be further announcements from government and many loose ends will be tied up before 1 April. However, it seems clear that buying a second property is just about to become a more expensive prospect for most and may deter the one off buy-to-let landlord investors. The question is, what on earth will they do with their pension funds?