Stamp Duty Land Tax changes - Guide for clients and conveyancers

23rd March 2016

The Government has now confirmed the rules for higher stamp duty land tax (SDLT) higher rates (Stamp Duty Surcharge) for purchases of additional residential properties.  These changes will take effect as from the 1st April 2016

In this article, written by David Pett, some of the main features of the changes are examined. 

The higher rates will be 3% above the standard rates of SDLT but will not apply to purchases of property under £40,000 or purchases of caravans, mobile homes and houseboats. Transitional provisions provide that where contracts were exchanged on or before 25 November 2015 and the purchase completes on or after 1 April 2016 the higher rates will not apply.  A calculator is available on the website which calculates the amount of SDLT due on purchases of additional residential properties.

If you’re replacing your main residence you will not be liable to pay the extra 3% SDLT if the property you are purchasing is replacing your main residence and that has already been sold.  This is the case even if you already have two or more properties, and you sell your main residence and buy a replacement residence within three years. 

Renting a new main residence in the time between disposal and purchase will not prevent the purchase from being a replacement of a main residence unless the period of the tenancy agreed is more than seven years. 

If there’s a delay selling your main residence and it hasn’t been sold on the day you complete the purchase of your new main residence you will have to pay higher rates because you own two properties.  However you should get a refund if you sell your previous main residence  within three years.  There is a simple form to complete which will be available on 1st April. This will need to be completed within 3 months of selling your previous main residence, or within 12 months of the filing date of the return, whichever comes later. This can be completed by the main purchaser of the property which the higher SDLT payment was paid on or by a solicitor acting on your behalf if you provide a letter of consent.

If you are purchasing any properties jointly with other people and any of them already own one or more properties, you’ll need to pay the higher rates.  Ironically this will cause unfairness to certain people who are looking to get their feet on the property ladder.  Take the following example.  A couple is in the process of purchasing a property jointly, which will be their main residence. One of the couple currently owns another property which is rented out and the other is a first time buyer. Surprisingly ( and I say this as the objective behind the changes is to make it easier for first time buyers to find affordable property) the higher rates will apply to the total purchase price as following the purchase one of the joint owners will own an interest in an additional residential property. For joint purchases the higher rates will apply if either of the purchasers own other residential property.

If you’re married or in a civil partnership, buying a property and your spouse or civil partner already owns a property you may still be liable to the higher rates though as is mentioned above you may be able to claim a refund if the interest in the other property is disposed of within 3 years. 

If you are purchasing a property and at the same time inherit a share in another property which is 50% or less of the market value of the inherited property the inherited share will not be taken into account providing the purchase completes within three years of becoming entitled to the inherited share.  This means the additional tax will not be payable. 

It’s worth mentioning in conclusion the following exemptions:-

You don’t have to pay SDLT or file a return if:

  • no money or other payment changes hands for a land or property transfer
  • property is left to you in a will
  • property is transferred because of divorce or dissolution of a civil partnership
  • you buy a freehold property for less than £40,000
  • you buy a new or assigned lease of 7 years or more, as long as the premium is less than £40,000 and the annual rent is less than £1,000
  • you buy a new or assigned lease of less than 7 years, as long as the amount you pay is less than the residential or non-residential SDLT threshold
  • you use alternative property financial arrangements, e.g. to comply with Sharia law

What does this mean for conveyancers?

The first consideration is to ensure that clients are made aware of the changes and of the obligation which rests with the client to provide full and truthful disclosure of the circumstances which surround the purchase. The legislation places the obligation on the client to make the correct declaration and will not require the conveyancer to ‘police’ the system 

I do consider however that terms of retainer should make it clear that advice on taxation issues relating to the transaction including stamp duty does not fall within the ambit of the retainer and that if advice is sought it should be taken from an accountant or expert. 

If as is usual the conveyancer acts as the client’s agent to submit the stamp duty return then again the appointment letter should make it clear that the return is being submitted on the basis of the information supplied and that the conveyancer does not accept any liability for any information sent which turns out to be incorrect. 

All quoting systems should be reviewed and changed and consideration be given to the questions which need to be asked to determine stamp duty liability. 

Questions like the following:

  • Do you or your partner (if applicable) own any other property?
  • If you do is the property you are purchasing to be used to replace your main residence which you are selling or which you have sold within the past years (calculated with reference to the date on which you estimate you will be completing your purchase)?

If the answer to the first question is yes and the answer to the second question is no then in all likelihood the additional stamp duty will apply.  There may be other exceptions but in general terms this should flush out the information required. 

There should also be training sessions arranged for all staff so that the detail of the changes and the examples within the Revenue’s Practice Note can be considered. 

This article was written by David Pett and reproduced with permission of MJP Conveyancing who provide legal advice and services to clients based in England and Wales and can be contacted on 01603877067

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