Are SDLT charges hitting the wrong target?

19 September 2017

The intention of introducing a 3 per cent increased stamp duty land tax (SDLT) rate was to ‘try and redress the balance between those who are struggling to buy their first property and those who are able to invest in additional properties’. The increased rate was specifically aimed at those people with second homes and buy to let properties.

According to research by the London School of Economics and the VATT Institute for Economic Research, removing SDLT altogether could increase the rate of home moving by 27 per cent and, whilst there are a number of factors at play, it could even be that the increase in the rates of SDLT may have made it harder not easier for first time buyers, as second home owners may be discouraged from selling.

What do the details look like?

SDLT on purchasing second residential properties (outside of Scotland) costing £500,000 has increased from £15,000 to £30,000, and for properties worth £2m it has gone from £153,750 to £213,750. For Scotland, there are corresponding higher differential rates for Land and Buildings Transactions Tax.

Some of the less obvious circumstances now being affected include:

  • people moving to the UK and purchasing a home when they already own a residential property overseas;
  • couples purchasing a new home who get married or enter into a civil partnership, where one or both have another property which they will keep;
  • a parent buying a first home for an adult child where the parent has an existing property and retains an interest in the child’s new property, however small;
  • a parent buying a residential property in a minor child’s name where the parent (or spouse) already own property;
  • properties where there is more than one dwelling being acquired - except in very limited circumstances; and
  • unmarried couples who buy together as joint tenants, where the rules would result in a higher charge for either or both buyers if they already own residential property.

Property lawyers now check if a buyer is aware and can afford the higher than expected SDLT and LBTT charges at a far earlier stage than before.

With significant additional financial cost these charges are now bringing, it is becoming a deal breaker for many buyers, requiring them to renegotiate or even withdraw from a purchase.

What happens if I buy a property before selling my main residence?

If an exisiting main residence is sold within three years of acquiring a new property, the buyer can reclaim the additional SDLT/LBTT cost incurred as a result of the new residence being, albeit temporarily, a second home . However, this will have an impact on cash flow, requiring the higher charge to be paid upfront, which could also become a deal breaker in some circumstances.

Also, in circumstances where a buy to let property is already owned, if the new property replaces a main residence that was sold within the three years before the acquisition of the new property, for example if you rented your main residence for a couple of years, the higher rates of SDLT may be avoided.

Whether the UK government has successfully used SDLT/LBTT rates to help first time buyers compete against the ‘buy to letters’ is up for discussion. But in the meantime, the SDLT (and LBTT) rules become more complex and can place additional burdens on buying residential property for those individuals who were not the original intended target.

For more information about SDLT, please get in touch with Adrian Benosiglio or your usual RSM contact.