Residential property purchases may now be subject to a higher rate of Stamp Duty Land Tax (SDLT) for second owners.
Normally we can tell if you are liable for the additional 3% stamp duty rate by asking two questions:
| Question 1 – Will the purchase of the property result in you (or your spouse (if any)) owning a share1 in two or more residential properties? | YES | NO |
| If YES then you need to answer question 2. | If the answer is NO there is no additional duty. You do not need to answer question 2. | |
| Question 2 – Is the property being purchased replacing your main residence (where you live) which you either are selling at the same time or have sold in the past2? | YES | NO |
| If the response to Question 2 is YES then there is no additional duty | If the answer is NO an additional 3% duty is payable on the purchase price. | |
1 some shares in residential property are exempt. They are shares worth less than £40,000; or shares in a property inherited within the last three years which represents less than 50% of the value of the property (including any share held by your spouse (if any)); or ownership of static caravans, mobile homes or houseboats; or shares in residential property outside England Wales and Northern Ireland.
2 If you are buying a new main residence and selling your existing one there will not be a charge to higher rate duty provided you sell before you buy. If you buy a property even a day before the sale then you are required to pay the additional 3% duty and then claim back the additional duty when the sale completes (provided you sell within 3 years). The reclaim process can take around 3 weeks.
Frequent Asked Questions
The basics
Is Stamp Duty Land Tax (SDLT) the same as Stamp Duty?
Technically no but in the real world the general public use these term Stamp Duty as this is what the original tax on the land transactions was called. This was replaced with SDLT in 2003 but as the terms are similar articles sometimes misuse the phrase. In theory Stamp Duty only now applies to share transactions but it to most normal people (i.e. non lawyers) a short phrase for Stamp Duty Land Tax.
I am buying my first property but it is a buy to let purchase – does the higher rates apply to me?
No – if you (including your spouse/partner see below) only own one property then the lower rates apply even if you plan to let the property.
I’m buying a second property to let our as a buy to let – do the higher rates apply to me?
Yes – if you already own a property then any further properties will be subject to the higher rates.
I am buying a second property but I am not intending to let the property – do the higher rates apply to me.
Yes – second properties e.g. holiday homes also trigger the higher rate of SDLT (unless the holiday home is a static caravans, mobile home or houseboat where the charge does not apply). The charges does not just apply to buy to let purchases as sometimes reported.
Family members
I’m helping my children or grandchildren buy their first property – do the higher rates apply to them?
It may do depending on the structure. If you purchase as a joint owner with your child or children then the whole purchase price will be subject to the higher rates. This does not matter whether you appear as a joint tenant or tenant in common or have a trust deed showing you only have a nominal share in the property. This type of arrangement may be required because you are on the mortgage with your children.
However if you are either lending or gifting the deposit to your children then provided the property is purchased in their names only and it is their first property then the normal (lower) rates of SDLT apply. In this case you can protect your interest on the title by taking a mortgage on the property in your name i.e. you are lending your children a specified sum and you want security for repayment. This will not trigger the charge.
You could also be a guarantor under a mortgage (providing a separate guarantee to the bank to ensure that your children pay the mortgage) which does not make you a owner of the land but these types of mortgage arrangement are rare.
Whatever the arrangement it is important that the property is exclusively in their name.
Moving Home
I am moving but have not yet sold my main or primary residence – do the higher rates apply to me?
Yes – the purchase of an additional property will attract the higher rates of Stamp Duty Land Tax but you can apply for a refund from the Revenue of the extra 3% tax provided you complete the sale of your existing main residence within 3 years of completion of the purchase of the new property.
I sold my main or primary residence last year – do the higher rates apply to me?
No – if you sold your primary residence within the last 3 years (longer periods apply for the transitional period) then you can purchase another property to be your primary residence at the lower rate of SDLT regardless of whether or not you own other properties.
I’m moving to a new home (to be my new primary residence) but renting my old one – do the higher rates apply to me?
Yes – the result is that you own two properties so the purchase of the new property will attract the higher rates of SDLT (regardless of the fact that it is to become your main home).
Couples
My wife or husband already owns a property – does that affect me?
Yes – if your spouse (or civil partner) owns a property then as far as the government is concerned you and your spouse/civil partner are treated as one entity (as already exists under the CGT regime for your only or principle residence allowance). If they already own a property then your purchase, even if it is your sole name, will be deemed to be an additional property and be subject to the higher rates of SDLT (but see below if you are separated).
Will I be liable for the higher rate tax if I am separated but not formally divorced from my spouse and I buy a new property to live in?
Married couples who are living separately in circumstances that are likely to become permanent will not be treated as one unit for the purposes of the 3% surcharge. Provided you do not trigger the additional charge by meeting the other criteria then you will not be liable for the higher rate of tax.
What if I already own a property, but I’m buying with my partner who doesn’t?
Unfortunately even if just one of you already owns a home (whether you are living in it or not), when you go to buy another one together, the 3% Stamp Duty surcharge will apply.
Shares in other Property
I already own a share of a property jointly with a friend but am buying another property – do the higher rates apply to me?
Yes – the result is that you own two properties so the purchase of the new property will attract the higher rates of SDLT (regardless of whether or not you make it your main home) unless the share is very low value – is the share is worth less than £40,000.
I have recently inherited a share in a property but I am buying another property – do the higher rares apply?
It will depend. If the share in the inherited property was acquired within the last three years and it represents 50% or less of the value of the inherited property then you will not be liable for the high rate tax. However you need to include within the % calculations any share held by your spouse.
I’m buying my first property but jointly with a friend who already owns a property – do the higher rates apply to me?
Yes – the result is that your friend owns two properties so your purchase of the new property will attract the higher rates of SDLT (regardless of the fact that it is your first property).
Overseas Property
I already own a property outside the UK – do the higher rates apply to me?
Yes – if you already own a residential property overseas then any residential property you buy in the UK will be subject to the higher rates.
Company Purchases
Can I avoid the higher rates if I purchase in the name of a company?
No – any residential property (be it the first, second or subsequent) purchased by a company will be subject to the higher rates of SDLT (even if the company does not own any other property).
Types of Land
Does the higher rate apply to commercial property purchases?
No – it only applies to residential property. This means that commercial property and mixed use (commercial and residential in one building) property are not subject to the charge. It is also possible to treat 6 residential properties purchased in one transaction as commercial.
If I purchase a plot of land to build a house on it (with or without planning permission) whist I retain my main house to live in I will this be subject to higher rates?
No – the plot of land is not treated as residential property – it is commercial and therefore higher rates do not apply.
If I purchase a residential property with planning permission to turn it into multiple dwellings (houses or flats) will I need to pay the higher rate tax?
Yes because the proposed use does not change the nature of what you are buying – if however you negotiate a provision in the contract to demolish the house prior to completion you could legitimately avoid the higher rate tax.
I am buying a mixed use property including a ground floor shop and a flat or flats above – will the presence of the residential flats potentially trigger the higher rate charge?
No – because mixed use properties are treated as commercial property for the purpose of calculating stamp duty so not only will you avoid the higher rate charge you will also pay duty at commercial rates (which are lower because they commence at £150,000 not £125,000).
Needless to say this is a complex area and therefore specific advice should be sought before submission of any SDLT tax return.
Can we assist?
For further information or to discuss your circumstances in more detail please contact Mark Sadler on 01708 757575 or email mbs@ker.co.uk
9 comments on “Higher Rates of Stamp Duty Land Tax For Second Owners and Buy to Lets – Does it apply to me?”
Hi,
I’m looking to purchase a property in partnership with my sister, since she is splitting up with her partner. I’m intending to contribute c.50% the monthly payments as a long term invetstment (she will place a 15% deposit down), but this will also ensure she has a suiatble home for her and her son.
My question was whether there is a way we can arrange the mortgage, so that we don’t incur the higher rate of stamp duty, as I already have a joint tenancy mortgage on my main home with my wife, but we’re not buying the second home as a buy to let, just for her to live in?
You are unfortunately going to have to pay higher rate duty in such circumstances. If either party triggers the charge there is no relief for the ‘innocent’ owner. The government overlooked the opportunity to review or cancel the effect of this in the recent Autumn statement.
Unless the lenders is prepared to accept you as a guarantor under the mortgage (rather than joint borrower) then your name will be on the title and the higher rate charge will apply. However if you are guarantor then you will not have an automatic beneficial interest in the property so this will be another problem to overcome.
Even if you came off the title of the matrimonial home you would still be treated as a second owner because spouses (unless they are divorcing or permanently separating) are treated as one and your wife’s ownership would be counted (in some circumstances it may be cheaper for married couples to divorce before buying a second home and then remarry (possibly with a reception) after the purchase than pay the additional duty! )
Hello,
I am considering buying a house that has been converted to multiple self contained flats for the purpose of buy to let. If the price is around £120,000.00 and this would become the only property i own, will i be subject to SDLT and or the higher 3% tax.
My other question is again i do not own any property and want to buy a property for buy to let purposes, at what purchase price does it become subject to SDLT and or the 3% higher tax.
Thank you Elias.
We lived in a static caravan our main residence.we let two houses ,so we purchased another house on a mortgage sold the caravan our residence,and moved into a little house,and were asked for higher rate stamp duty we paid, can we claim back I read we could or don’t caravans count
I own a flat which I have had for almost 20 years. I lived in it years ago and have moved away due to relocation. The flat is empty and not a buy to let. I have been trying to sell for years, but am struggling due to the freeholder being a very bad freeholder! I have had numerous offers fall through to the point of sales fall through on compleation day.
The flat is valued at 68k ( less than I bought it for) For me to be able to move forwards and buy a house with my partner my fathe has offered to clear the mortgage, this would then make us equal owners and I would transfer equity to him making is 50/50 owners and each of our shares worth less than 40k. I have had mixed advice. my solicitor says we are not exempt and seams to think it goes of the market value and not the share. I spoke to HMRC they said we were exempt and it goes of your share value. I’m really worried and confused, the whole flat has been a nightmare, negative equity, huge maintenance bills (from freeholder for nothing / no repairs in 10 years), unable to sell. I have been renting and paying mortgage here for years, I’m desperate to sell. I’m desperate to buy another property a home of our own. I’m not a buy to let landlord, I’m saddled with a property, which may end up costing extra stamp duty. I feel like I have been extra penalised and I am not the type of person who this second home stamp duty is intended to hit. I can’t even claim back the stamp duty as the flat is sat empty.. has been for years therefore is not my main residence and hasn’t been in last three years.
Hello,
I was hoping you could help answer my query.
Me and my wife own our current house (50% share each). Our current house is worth 275k. We are buying a new house which will become our main residence. The new house is worth 500k.
Our current house will become buy-to-let when we move.
I understand that I have to pay higher rate. My question is that can I apply for a partial refund later as my current property which will become buy-to-let is at lower value and attracts lesser stamp duty.
Thanks so much for your help.
No there is no relief from the higher rate (3%) you pay extra on the new £500k property unless you subsequently sell the existing house within the time limits (broadly you need to sell within 3 years and make any claim for a refund within 12 months of that sale). This is why some people in your circumstances arrange to sell the buy to let property into a limited company owned by them because there can be some benefits tax wise in running the buy to let via a company – broadly the ability to fully offset mortgage interest against rent and of course you will also have a large loan account with the company for the balance of the purchase price (i.e. the purchase price + fees less the mortgage amount) – as this is owed to you by the company it means after payment of the Corporation Tax you can draw this broadly without paying any further tax in the company or in your hand. Normally in these circumstances there is no CGT for you because you are selling your main residence. Downsides – higher interest rate for companies broadly and running costs (this is not tax or commercial advice so speak to your accountant!).
This sale to the company incurs stamp duty of course with a 3% surcharge for companies (£12,000) but this is funded by the stamp duty refund you can now claim on the new property (£15,000).
Hello.
My partner and I are thinking about buying a house together , but I already own 25% of the other property (shared ownership) which is worth £32k. Do we have to pay higher stamp duty ?
Thank you