When buying or transferring a property there are an array of fees and costs to pay. Most buyers are aware of the tax payable to the government known as Stamp Duty but not everyone is aware of recent changes which include higher rates for purchases of additional residential properties.
The changes are complex and we can’t cover every scenario but let’s have a look at some of the main features of Stamp Duty and how the changes affect Stamp Duty payable.
Stamp Duty is paid at different rates, depending on the purchase price. Currently, for example, someone buying a property for £245,000 would pay no tax on the price of the property up to £125,000 and 2% tax on the property price between £125,001 and £245,000. In this case, total liability for Stamp Duty would be £2,400.
Anyone buying an additional home including a buy to let property will pay a 3% surcharge on top of the relevant standard rate band. In this example that would represent an extra £7,350, meaning the total stamp duty would be £9,750.
Recent changes largely affect people buying an additional residential property resulting in them owning more than one property, in such cases, they may be liable for payment of a 3% surcharge on top of the normal Stamp Duty rates.
Married couples and civil partnerships, take note, you may have to pay the 3% surcharge even if one of you doesn’t already own a residential property as the rules apply to each person (and their spouse) who is buying the property.
If any of you will own, or part own more than one residential property worth £40,000 or more, you will have to pay the 3% surcharge on your new purchase (unless there is another reason why the higher rates do not apply).
When considering other residential properties each of you will own at completion of your new purchase you must include any residential property that:
- Is owned on behalf of children under the age of 18 (parents are treated as the owners even if the property is held through a trust and they are not the trustees)
- You have an interest in as the beneficiary of a trust
There are exceptions to the additional rate:
- If your purchase is replacing your main residence which is being simultaneously sold, you will not be liable to pay the 3% surcharge.
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 the 3% surcharge because you own two properties.
However depending on when you sell your previous residence you can apply for a refund of the surcharge paid. See the Government website for details. You will need to complete a form online or fill in the form on-screen, print it off and post it to HMRC.
The 3% surcharge will not apply if your new purchase is for less than £40,000.
A calculator is available on the gov.uk website which calculates the amount of Stamp Duty due on purchases of additional residential properties: https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro. However please note the calculator is only suitable for certain situations which are explained on the website and must be read in line with the guidance notes.
This article is not intended to provide advice about Stamp Duty applicable to individual circumstances but to highlight the complexities of recent changes and the need to consider your circumstances and how they may affect the Stamp Duty payable.
We are able to seek advice from a specialist tax advisor where circumstances are more complex.