Following a Government Budget announcement in November 2015, a higher rate of stamp duty became payable on additional property purchases from 1st April 2016.
The rules in relation to the calculation of the higher rate are complex and this article relates mainly to individuals and not corporate bodies or trusts.
On completion of a purchase, the new land owner is required to complete a Stamp Duty Land Tax Return and to make any necessary duty payment to the Inland Revenue within 30 days of the completion date. The return can be completed by the purchaser themselves but is usually completed by the solicitor who acted in the transaction. If the property purchase includes mortgage finance, the lender will insist that the solicitor completes the return and makes the payment on the purchaser’s behalf. To comply with the lender’s requirements, the payment is usually required to be paid to the solicitor before the mortgage advance can be utilised in the property purchase. The return is required before registration of the transaction can be completed at the Land Registry.
The aim of the higher rate was not to penalise purchasers from replacing their main home but to levy the additional duty on second homes and buy-to-let properties. In addition to the usual stamp duty thresholds and rates, an additional 3% duty is payable on the full purchase price as long as the total price is in excess of £40,000.00.
The general rule is that, if you will own more than one property anywhere in the world at the end of the day of completion of your purchase, you will be liable for the additional rate unless you are replacing your main home.
If your main home is not replaced at the same time as acquiring your new home, there is provision for the additional amount to be re-claimed once the sale has taken place and, from 25th November 2018, this must be within three years of the purchase taking place. Any claim for repayment of the additional duty must be made within three months of the sale taking place or one year of the filing of the return whichever is the later.
If you are married or in a civil partnership, the owning of a second home by your partner is taken into account even if the purchase takes place in your sole name due to the fact that, in a marriage or civil partnership, you are treated as one entity.
The Government has produced a guidance booklet which contains the rules along with a question and answer section. This is a useful tool in ascertaining whether the higher rate applies as it contains numerous different scenarios. This can be accessed via the H M Revenue & Customs website at https://www.gov.uk/stamp-duty-land-tax/residential-property-rates. For further information please contact Alison Smith on 0191 261 0096 or by email at firstname.lastname@example.org.