Higher Rate Stamp Duty Land Tax

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The Higher Rates for Stamp Duty Land Tax (SDLT) came into force on 1st April 2016.  The higher rate is calculated as a 3% surcharge on the standard rates, and applies to all purchases of a second residential dwelling, unless an exemption applies.

How will you know whether you will have to pay the higher rate?

First of all, it is important to understand that the higher rate only applies to residential dwellings, and not to commercial properties or land (unless the land in question has a residential dwelling on it).  A dwelling includes holiday homes, e.g. cottages or flats, but NOT caravans, houseboats or mobile homes.

A dwelling can also be anywhere in the world.  So, if you own a residential property abroad, and then buy one here, you could find yourself liable for the higher rate.

An exemption that will generally apply is if you are replacing your main home, which is being disposed of.  So, if you own the house that you live in (your home), and a flat that you rent out, and you sell your home and buy a new one which you live in as your main home, then even though you will own two residential dwellings, you will only pay the basic rate of SDLT.  However, if you own an investment flat, and rent your home under a tenancy agreement, if you then buy a house to live in, because you are not disposing of your home, you will unfortunately have to pay the higher rate.

It is also important to note that married couples, or those in civil partnerships, are treated as a single person by HMRC for SDLT purposes.  What does this mean?

Imagine you and your spouse or civil partner are buying a house.  You do not own any other property.  Your spouse/civil partner however owns a small investment flat that is rented out.  You therefore decide to buy the house in your sole name.  HMRC will look at whether your spouse or partner would have to pay the higher rate if he/she bought the house.  If the answer to that is yes, then unfortunately you will be charged the higher rate.

However, unmarried couples are treated individually for SDLT purposes by HMRC, and therefore in our example above, if your partner owns the investment property but you do not, you could then proceed with your purchase in your sole name, and only pay the normal rate.

What if you buy a new home, before you have sold your old one?  In these circumstances, as long as you lived in your old home for 3 years leading up to the purchase of the new home, then although you will be liable to pay the higher rate SDLT, assuming that you sell that first home within 3 years of your purchase of the new one, you may be able to claim back some or all of the additional SDLT that was paid.

It is all too easy to fall foul of HMRC’s complex rules and find yourself with draconian penalties.  At Morrish Solicitors LLP, our team of specialist property lawyers will be able to give you the expert advice that you need.

View Stamp Duty factsheet

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