Don't be an SDLT April fool
The stamp duty land tax (SDLT) rules for residential property are due to change on 1 April 2016, with some transactions being subject to an additional 3% duty above normal rates. A consultation paper is now out but we don’t expect the final rules to be announced on 16 March 2016, which is leaving it late in the day for those hoping to avoid the extra charge.
Although in the Autumn Statement, the Chancellor said the higher rate would apply to purchases of additional residential properties, such as second homes and buy to let properties, the proposals are rather more nuanced – causing lots of questions to be asked as to whether it will impact specific transactions. This includes:
- Some purchases of a property to use as a main residence will still attract the higher rate such as where the buyer has a share in another property and is not selling a main residence.
- Some purchases of a property to rent out will not attract the higher rate, for example if the buyer does not own another property.
Advice will often need to be taken as to whether the higher rate is likely to apply. If the higher rate would apply then a buyer who is looking to exchange contracts shortly is likely to want to complete before 1 April 2016 so that the existing rules apply.
The numbers make a big difference - for example, for a £275,000 purchase of a second home:
- if completion occurs before 1 April 2016 the SDLT would be £3,750;
- if it completes on or after 1 April the SDLT would be £12,000.
It's enough to make you want to rush out there, look at what is on the market and see if you can snap up a bargain before the new duty applies. But don't leave it until March to do so. The average lead on a purchase transaction is 6-8 weeks. Of course it can always be done more quickly but is dependent upon many factors such as the seller's ability to vacate quickly, or to complete their onward purchase, or the lender to issue your offer, or the search provider to… well to provide the searches.
Now I will be honest here (yes, I am, I swore an oath to that effect) – I don’t spend my full working hours for the 6-8 weeks working on one transaction. The time accumulated over numerous letters and documents can be over several weeks, depending on the pace at which advisers, agents and everyone else in the chain operate. It is also important to ensure that if you will be caught by the SDLT change, that everyone in the chain is working to the same deadline – as depending on their circumstances, you could be the only one it impacts.
We are now entering February and that 6-8 weeks will take us comfortably to the end of March, just before the 1 April deadline. So… a solicitor taking instructions to complete the purchase of a second home before the SDLT deadline really needs your instructions during that first week of February, or just maybe, the second week, depending on how complex your purchase is and how many other clients they took on during that first week who may be ahead of you. And whilst I would normally encourage you "don't all rush at once" , as I like a nice steady workload just like the next person, I would, in this instance, actually urge you to rush a little otherwise you will miss out on the benefit of completing pre April . And I mean COMPLETE, not just exchange.
For further information on your property purchase, please contact Tanya Warner or your usual Blake Morgan adviser.