SDLT and residential property – Update on the additional 3% charge

Graham Chase, Tax Partner, CMS

As previously announced, and following consultation, higher rates of SDLT are to be introduced for purchases of additional residential properties from 1 April 2016. The higher rates will be 3% above the current rates.

SDLT will be calculated as follows:

  • £0 – £125,000                3%
  • £125,001 – £250,000       5%
  • £250,001 – £925,000       8%
  • £925,001 – £1,500,000    13%
  • the remainder                15%

The additional rate does not apply where the consideration is less than £40,000.

The consultation envisaged an exemption for “significant” investors but this has been rejected.  Residential property developers as well as investors will be affected by the rate increase, even where there is a underlying business of development or the property is let to third parties. This will be disappointing for many. Such a restrictive approach here might be contrasted with ATED for example.

Multiple dwellings relief remains available, the 3% will be factored into the SDLT calculation once the average dwelling price has been established. Purchasers continue to have the option to treat an acquisition of 6 or more dwellings as a commercial transaction (effective rate up to 5%), which may result in a lower rate of tax (even after the increases for commercial property announced today).

Where a new main residence is bought by an individual:

  • before the sale of a current main residence, the purchaser will be required to pay the higher rates, but a refund of the additional 3% may be sought provided the sale takes place within 3 years of the new purchase; or
  • after the sale of a current main residence, and the purchaser owns additional properties, the purchaser will not be required to pay the higher rates provided the purchase takes place within 3 years of the sale. For taxpayers who sold prior to the Autumn Statement the 3 years runs from 25 November 2015.

Transactions which complete this month remain subject to the existing rules.

On or after 1 April transitional provisions apply to contracts entered into before 26 November 2015 (as the increase was announced in the Autumn Statement); broadly, the higher rate will not apply provided substantial performance takes place before 1 April 2016, or the contract is completed after that date but it has not been varied, assigned or sub-sold.

Warren Gordon has written a detailed account of the changes, the recently published guidance and the practical implications and it can be found on our website here. It includes a link to the guidance and to the online SDLT calculator.

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