A reminder that the Additional 3% SDLT charge is now in place.
If you are planning the purchase of a UK residential property and you own another property at the time of the purchase, then you may need to consider whether or not you may be liable to the additional charge to Stamp Duty Land Tax (SDLT).
The additional 3% rate of SDLT for those purchasing ‘additional residential properties’ in England and Wales, such as second homes and buy-to-lets, is due to apply to completions from 1 April 2016, subject to some transitional relief (FB 2016 cl 117).
The increased SDLT rate will apply where, at the end of the day on which a property is acquired, the individual concerned owns two or more residential properties and is not replacing his or her main residence, which has been sold within the last 18 months.
Married couples and civil partners (unless they are separated in circumstances likely to be permanent) will be treated as a single unit for this purpose.
The 3% additional SDLT rate will also apply where an individual has sold their main residence and it takes them more than 36 months to complete the purchase of a new one, provided of course that the individual has more than one property at the end of the day the new property is acquired.
Where property is being purchased jointly, the additional 3% SDLT rate will apply to the entire value of the additional property if any of the joint owners already own a residential property.
In Scotland a supplementary transaction tax of 3% (now called the additional dwelling supplement (ADS)) will apply to second homes or buy-to-let properties.
The government have made a U-Turn with regard to the new tax being applied when a property is purchased with an annex, especially where the purchase is made to provide living accommodation for an elderly relative. More details can be found here:
After the announcement by George Osborne in last year’s Autumn Statement that he proposed to introduce a 3% Stamp Duty Land Tax charge on the purchase of ‘additional residential’ properties in the UK, the government have issued a consultation document that outlines how the proposals may work.
The main gist of the proposals are that, if at the time of purchasing a UK residential property you have more than one residential property (worldwide), and the property being purchased is not replacing your main residence which has been sold, then the 3% surcharge could apply.
The new proposals appear much more restrictive than originally envisaged and many potential loopholes have been covered:-
* Married couples and civil partners will generally be treated as a single unit when considering how many properties they own and which one is their main residence. Somewhat, unfairly, unmarried couples can each own their own separate residential property and avoid the charge, even if they are cohabitating. However, joint purchasers may be caught if one of them owns an additional property.
Other targeted loopholes that could be caught include:-
* A purchase through a company or partnership;
* A purchase for your child, where a parent is a joint owner of the child’s property;
* Ownership through certain types of trust, but not all types, so there could be some scope for planning here.
Where there is a delay in selling your previous private residence and the purchase of new residence so that two properties are still owned at the date of transaction, the additional charges will apply. There is however, a mechanism for reclaiming the additional SDLT charged where the former residence is sold within eighteen months of the purchase of the new property.
Another trap is that if you own more than one property but sell your main residence and, say, live in rented accommodation, the additional charge could apply if you decide to purchase a new residence more than eighteen months after the disposal of your original residence.
The new charges are set to take affect from 1 April 2016, and the consultation closed on 1 February. Whilst the government have pledged that they will consider all responses, they expect to confirm the final policy by Budget day on 16 March 2016; which makes it unlikely that there will be any significant changes to the proposals.
Good news on the horizon for landlords
The taxman is becoming quite adept at sleight of hand tricks, whereby tax rules and reliefs are mysteriously changed or removed overnight. On such relief was for landlords of unfurnished properties and the withdrawal of what was known as the ‘renewals’ relief. Under this practice landlords could claim relief for the renewal of items in their rental properties such as; fridges, carpets, curtains, beds etc. From 6 April 2013, the taxman made the renewals basis disappear, leaving landlords potentially out of pocket, when renewing items in their properties.
Landlords who let properties fully furnished were not able to claim the renewals relief but are entitled to an annual wear and tear (W&T) allowance based on 10% of the rental charges, and this was intended to cover the costs of renewals. The W&T allowance is still available and this has led to a somewhat uneven pitch for landlords.
The good news is that the taxman is aiming to level the playing field for landlords. HMRC have published a consultation document in which it discusses proposals to replace the W&T allowance with something that looks remarkably like renewals relief!
Under the proposals the initial cost of furnishings etc. will not be allowed as a deduction against rents (like it was under the renewals relief). The cost of renewing items provided for the tenant’s use in a rented property will be allowable as a deduction (as was the case under renewals relief).
It should be noted that fixtures integral to the property such as baths, fitted kitchen units and boilers are not included. However these costs would normally be allowable as a repair the property.
So as I see it, the result of the new proposals are to remove the W&T allowance for landlords of fully furnished properties and reinstate a sort of renewals relief for all landlords.
If the proposals go ahead the changes will come into effect from April 2016, so landlords may need to look closely at the timing of replacing items in their buy to let properties.