What rate of SDLT should you pay when buying a residential property?
This guide provides a brief overview of the different rules and rates of SDLT applicable to residential property to help you work out how much SDLT you will need to pay in connection with your purchase.
As part of the government’s focus on supporting home ownership, new rates of SDLT were introduced in 2016 requiring those buying a 2nd residential property to pay higher rates of SDLT. There were also changes introduced in November 2017 granting first time buyers relief from paying SDLT.
Will the increased rates apply to my purchase?
If you are buying your first residential property (either on your own or with others) you don’t need to worry. Similarly, if you have already owned a home but are selling it before you buy a new one the increased rates will not apply to you.
If you are buying a second residential property you will be subject to the higher rates of SDLT unless you can claim the benefit of an exemption. This applies even if your other residential property is located outside of the UK.
What if I am buying the property with a partner?
Where two or more people are buying a property, if either one of them already owns another residential property the increased SDLT rates will apply.
Furthermore married couples and civil partners can only own one residential property between them. So, if your partner already owns a residential property you will be caught by the higher SDLT rates even if you don’t own property in your name and even if your partner is not buying the new property with you.
There are special rules for couples who have separated. Please speak to us if these may be relevant to your circumstances.
What are the higher rates?
The higher SDLT rates are calculated at 3% above each of the standard residential rates as follows:
NB if a property is purchased for less than £40k it does not require an SDLT return to be submitted and higher rate SDLT will not be due.
What happens to property that is held in trust?
If a person has the beneficial but not legal ownership of a residential property he or she is treated as owning that property for the purposes of working out the number of residential properties owned. In the case of property held on trust for minor children the parents of those children are treated as being the “owners” of the property.
If you are a trustee and are considering the purchase of residential property for a trust your exact intentions for that property will determine at what rate SDLT will be due. There are detailed rules around this so please speak to your contact at Hedges if you require further advice.
What if I have inherited a residential property?
You may be exempt from the higher rates dependent on the exact circumstances. Please speak to us about your personal position and we will be able to advise further.
Can I set up a company to buy the property?
You can but it won’t help you to avoid the higher rates of SDLT: the first (and any subsequent) purchase of residential property by a company or a collective investment vehicle will also be subject to the SDLT at the higher rates.
Are there any exemptions I can benefit from?
There are a few:
- If you are selling and buying a property to replace your main residence you will not be subject to the higher rates of SDLT (this is the case even if you already own one or more buy to let properties).
- If you are replacing your main residence but have not sold your old one yet you must pay SDLT at the higher rates but may apply for refund as long as you sell your original residence within 36 months. You must make the application within 3 months of completion of the sale of your original residence and HMRC says that it will process refunds within 15 working days.
- If you sell your main residence and replace it with a new main residence within 36 months you are not required to pay SDLT at the higher rates (even if you own other residential properties).
- If the property you are buying can be considered to be of mixed use (ie it includes an element of residential and commercial property) it will not be subject to residential rates of SDLT and instead will be dealt with under the commercial SDLT regime. This exemption can often be used for houses that come with farm land or paddocks etc.
- Multiple dwellings relief (MDR) will still be available where 6 or more residential units are purchased in one transaction (and a purchaser will be able to elect whether to treat such a transaction as commercial for SDLT purposes or as residential with MDR applied to the higher SDLT rates).
Relief for First Time Buyers
First time buyers will benefit from reduced levels of SDLT on purchases of residential property for £500,000 or less, provided that the purchaser intends to occupy the property as his or her only or main residence.
First time buyers purchasing their first home for £300,000 or less will pay no SDLT. Where the purchase price is over £300,000 but does not exceed £500,000 they will pay SDLT at 5% on the amount above £300,000.
What conditions apply?
The following conditions must be fulfilled to benefit from the relief:
- The purchase relates to a single residential dwelling;
- The purchase price is not more than £500,000;
- All the purchasers (if there is more than one) are individual first time buyers; and
- The purchasers intend the property to be their main residence.
In order to count as a first time buyer, a purchaser must not, either alone or with others, have previously acquired a major interest in a dwelling situated anywhere in the world.
This includes previous acquisitions by inheritance or gift but not an acquisition as a trustee unless the purchaser was also a beneficiary of the trust. If the property is purchased jointly, all the purchasers must meet these conditions.
What does “main residence” mean?
If an individual resides at only one dwelling, that will be their main residence. However, there may be cases where an individual first time buyer intends to continue to reside at another dwelling following the purchase. This might be the case for example where the individual currently lives in rented accommodation near a place of work or study.
In such cases, HMRC says that all the facts and circumstances should be considered to determine whether the individual intends the purchased dwelling to be their main residence. It is not, however, mandatory that the purchaser occupy the property immediately following purchase; he or she must simply possess a clear intention to occupy the dwelling as the purchaser’s only or main residence.
The rules relating to SDLT are complicated and it is not always easy to work out which regime is applicable to your purchase and how much SDLT you will need to pay. Please speak to us if you are concerned about your personal circumstances or are unsure about the position; your advisor at Hedges will always be happy to talk things through and advise on the circumstances particular to your case.