Beware The UK Stamp Duty Hike

From 1 April 2016, the UK taxman introduced a new higher rate of stamp duty which applies to the acquisition of a ‘major interest’ in an additional residential ‘dwelling’. So beware if you are buying property in the UK.

A ‘major interest’ is defined as a freehold or leasehold interest, says Adam Thompson, tax manager at expat advisers The Fry Group.. A ‘dwelling’ is essentially a home but also land that is, or is to be, occupied or enjoyed as dwelling, or land that is, or is to subsist for the benefit of a dwelling.

In simple terms therefore, if you purchase a residential property after 1 April 2016, and at the end of the day of that transaction you own more than one residential property, then the purchase will be liable to stamp duty land tax (SDLT) at the higher rates.

These higher rates are an additional 3% on top of the standard rates of SDLT, as shown below:

 

Lower LimitUpper LimitRateTax in BandCumulative Tax
£0£125,0003%£3,750£3,750
£125,001£250,0005%£6,250£10,000
£250,001£925,0008%£54,000£64,000
£925,001£1,500,00013%£74,750£138,750
Over £1,500,00115%

 

When considering whether or not you own more than one residential property, you also need to consider property owned by your spouse or civil partner and property owned by your minor children – as these will be counted as yours for the purpose of assessing whether the higher rate should apply to the purchase. Likewise, if you are a beneficiary of an interest in possession trust and that trust owns property, then that property would be treated as being yours for the purposes of higher rate SDLT.

You should also consider property owned outside of the UK as this will count as well.

There are a couple of exceptions where owning a major interest in another dwelling would not apply. One of these is where you have inherited property jointly with one or more other persons and your beneficial share does not exceed 50%. In this situation, you would not be treated as having a major interest in that property for a period of three years beginning on the date of the inheritance.

You may also discount property with a value of less than £40,000 or on a reversionary lease where there is less than 21 years left to run.

The most common scenario where you may be subjected to this charge, unfairly, is where you are replacing your main home, but the purchase of your new home is completed prior to the sale of your old home. In this scenario you would have to pay the higher rates of SDLT on the purchase but you would be able to reclaim the additional 3% from HMRC if you were to sell your old home within three years.

The bottom line therefore is that this higher rate is almost impossible to mitigate where you own more than one residential property. The same higher rates apply to companies or crusts that own, or will own following the purchase, more than one residential property.