The Higher Rate
The SDLT premium rate has been with us since 1 April 2016. It is in effect a tax on second homes, but there are some exemptions and also some unintended consequences to consider.
In outline, the additional rate is charged on purchases of second properties by individuals and for all property purchases including the first acquisition by companies, but applies to residential property only.
The exemption which is most likely to be seen is the replacement of main residence relief. Supposing an individual owns his own home and a buy to let property. On a straightforward sale of his home with a contemporaneous purchase of a new main residence, the 3% additional charge will not apply. If, however, he acquires a further buy to let property then, whether or not he sells the first buy to let (or even his main home), then he owns at least two properties at the end of the day of purchase of the new buy to let, without replacing his main residence, and the 3% will apply.
There is a relief however, where a new home is acquired without a sale of the main residence at the same time if a new main residence is acquired within 3 years of the disposal of the first. This relief has to be claimed and if the disposal of the old residence is after the purchase of the new, a refund can be obtained by online claim to HM Revenue & Customs.
An interesting anomaly is the position where an individual sells his main residence and uses the proceeds to acquire a new residence and a buy to let property (assuming he does not own any further properties). If the new home is acquired first, he has replaced his main residence and no 3% is due. On acquiring the buy to let he already owns a property and hence pays the extra 3%. On the other hand if he acquires the buy to let first it is the only property he owns at the time of purchase, and no 3% is due. On acquiring the new home, he is replacing his main residence and no 3% is due. Hence the order in which the transactions are carried out can change the tax due, although the end result is the same!
When two dwellings are acquired in the same transaction, such as a house with a granny flat, then the 3% additional rate could apply to one of the properties. However, so long as one is a “subsidiary dwelling” and the test below is met, then (in the absence of further properties) the additional 3% is not charged. The subsidiary dwelling tests are:
- at least two thirds of the price is paid for the main dwelling.
- The subsidiary dwelling is part of the same building as the main dwelling or is within the grounds of the main dwelling.
In addition there is some interesting discussion as to whether, despite this test being met and no 3% charge due, multiple dwellings relief (MDR) can be obtained against the main SDLT rate as two dwellings are in fact being acquired. MDR operates by treating each property as a separate acquisition and hence the rates applied to each are lower than on the combined consideration for the two.
A final point to note is that married couples and civil partners are effectively treated as one person for the purposes of assessing whether the additional rate of SDLT is due.
The notes above are an outline of some anomalies and suggestions, but this is a complex charge and further advice should be sought if the charge may apply.