Following the introduction of the SDLT (stamp duty land tax) surcharge on 1st April this year, we are still finding that many are still unaware of the far reaching effect of the measure. We have already come across the following common misunderstandings:
Common SDLT surcharge misunderstandings
1 – Property developers and investors
When the surcharge was originally proposed, the government launched a consultation which included the potential exemption for large scale purchases. It mooted the prospect of an acquisition of 15 or more properties in a single transaction being exempt from the charge.
When the surcharge came into effect, the proposed exemption never transpired as it was felt unnecessary. Accordingly if you either own a large portfolio and/or acquire large numbers of residential properties you will be liable to the additional 3% charge. Investors and developers should therefore factor this in as an additional cost when looking to finance acquisitions.
2 – First time home owners
Whilst the surcharge was hailed as a measure to improve prospects for first time home buyers, the legislation creates some situations which some may consider iniquitous.
For example, consider an unmarried couple, one of them owns and lives in a property, they decide to let this out and then buy a property jointly together. Because one of them owns a property and it is not being replaced, the surcharge applies.
The above example appears unfair when you consider an individual that owns a large portfolio of residential properties, but sell their main residence and replaces it with a new main residence, in this example the surcharge would not apply.
Furthermore, if a property is inherited and more than a 50% share is transferred to the beneficiary this will count as a second property. So a beneficiary may be caught in a situation where they own a share in a property which they may not be able to sell, perhaps because the other beneficiary cannot afford to buy them out or they do not want to sell the property.
If a second property is then purchased, even if this is their main residence, they will be caught by the surcharge!
3 – Holiday homes – UK
The purchase of all second properties even if they are not intended to be rented out, for example if they will be used as a holiday home, are within the surcharge provisions.
4 – Holiday homes – abroad
Likewise a home abroad is included within the calculation of the number of properties held, so if you intend to retain an overseas property and acquire a residential property in the UK, this will also be within the charge.
Can any planning help?
Whether the above consequences of the new rules were intended or not, it would appear the current rules are here to stay. However, SDLT may be mitigated for transactions involving more than six dwellings in a single transaction and also where the property has some commercial element. Each transaction must be reviewed on the basis of its own facts.
Lastly whether a property is considered a dwelling, being subject to the surcharge, will be obvious in most cases. However some cases are less clear cut and require careful consideration. For further information on the above or on SDLT, please contact Richard Turner at firstname.lastname@example.org or call 01489 566716.