Stamp duty surcharge for those buying an additional residential property

What is the 3% UK Stamp Duty Land Tax surcharge?

In 2016, the government introduced a 3% Stamp Duty Land Tax (SDLT) surcharge for anyone buying an additional property in the UK. This applies to additional homes, buy-to-let properties and holiday homes.

The 3% surcharge still applies, irrespective of the new, reduced Stamp Duty rates recently announced by chancellor Rishi Sunak (which are valid until March 31st 2021) but it has prompted some of our investor clients to ask us to clarify how the two sets of rules affect them.

When do the higher Stamp Duty rates apply?

The higher (3%) Stamp Duty rates apply when you buy a residential property (or a part of one) for £40,000 or more, if the following apply:

• The property is not the only residential property (worth £40,000 or more) that you own (or own a share of) anywhere in the world
• You have not sold or given away your previous main home
• No one else has a lease on the property which has more than 21 years to run

What are the rules if you are buying with someone else?

If you are married or in a civil partnership, the rules apply to both individuals as if you are buying the property together. If either purchaser has to pay the higher rate, you must do so for the whole transaction (unless you are permanently separated).

And if you are buying with someone else, such as a friend or a family member, the rules apply to each person and their spouse. Again, if either has to pay the higher rate, the surcharge applies to the whole transaction.

Properties owned through a trust or partnership

There are additional rules for properties owned through a trust or partnership so we would recommend you seek specialist advice.

What if I own the property through a company?

If the property is owned through a company, the additional 3% is still payable.

When higher rates do not apply?

The surcharge does not apply to any individual who will use the new property as their main home or who has sold or given away their main home before purchasing their new home.

Neither does the surcharge apply when the property (or part of the property) is worth less than £40,000, or if it is a mix of residential and non-residential, for example a shop with a flat above, or it is moveable such as caravan or houseboat.

What could my Stamp Duty bill be on the new property I am planning to purchase?

We have a useful Stamp Duty calculator and this will allow you to easily calculate the potential Stamp Duty bill payable on any new property purchases.

Could I be entitled to a refund?

If you sell or give away your previous main home within three years of buying your new home, you can apply for a refund of the higher Stamp Duty part of your bill. You cannot do this if you or your spouse still own any part of your previous home or if the higher Stamp Duty rates apply for any other reason.

If you sold your previous main home on or before October 28th 2018, you must claim a refund from HMRC within whichever is the later of:

• three months of the sale of the previous main home
• 12 months of the filing date of the SDLT return relating to the new home

If you sold your previous main home on or after October 29th 2018, you must claim a refund within whichever is the later of:

• 12 months of the sale of the previous main residence
• the filing date of the related SDLT return

Exceptional circumstances

If there are exceptional circumstances and you purchased your new home on or after January 1st 2017, and were unable to sell your previous home within three years, you may be able to receive a refund if reasons beyond your control prevented the sale.

This could be because the impact of Covid 19 prevented the sale or action by a public authority prevented the sale. You can apply for a refund when you have completed the sale.

How does the Stamp Duty surcharge work in relation to the current increase in the threshold for Stamp Duty?

Of course, more recently the government reduced rates of Stamp Duty Land Tax (SDLT) for property purchases in England and Northern Ireland in a temporary measure. The Stamp Duty threshold has been raised to £500,000 until March 31st 2021.

So how do these two measures affect anyone considering the purchase of a second residential property?

The 3% Stamp Duty surcharge will still apply, in addition to any lower rates which will apply until March 31st 2021. So, for example, if you buy a property before then for less than £500,000 there will be just 3% Stamp Duty (the surcharge) to pay.

For more information on the current Stamp Duty threshold, go to our blog Government brings in temporary Stamp Duty reductions for property purchasers

What should you do next?

The Stamp Duty regulations are quite complex, affecting buyers according to their personal circumstances but the Gov.uk website is an authoritative source which is worth visiting if you need more information. Look up www.gov.uk/guidance/stamp-duty-land-tax-buying-an-additional-residential-property

Alternatively, email us and we can discuss your own individual circumstances.