One month to go before the 3% surcharge for residential properties
With Budget Day on 16 March, we expect the Government to reveal the final structure of the proposals for a 3% surcharge for SDLT for "additional" properties. What is clear from the consultation, which closed on 1 February, is that the Government have left little wriggle room for those looking to avoid the extra charge.
Who does it impact?
The surcharge is likely to apply to many property owners, including:
- individuals who have an interest in more than one residential property;
- developers who as part of their site assembly acquire an existing dwelling; and
- the public sector such as local authorities and social landlords who acquire dwellings.
The 3% surcharge will usually apply where an individual buys a property (in the UK less Scotland) and as a result they have an interest in more than one dwelling (including any overseas dwellings).
Are there any exceptions?
- If the dwelling is bought for use as a main residence and the buyer has sold a main residence in the last 18 months.
- If the buyer has not yet sold their main residence at the time of the purchase, the surcharge must be paid, but can be reclaimed if the sale of the previous main residence goes through within 18 months.
- An individual buying a house to let out will not pay the surcharge if that is his/her only interest in residential property (assuming he is not caught out because of interests held by a spouse or minor child).
- Someone owning many properties will not suffer the tax on acquiring a new main residence so long as he sells a previous main residence within the period allowed.
- Buyers might escape the 3% charge where a dwelling is part of a mixed acquisition, involving both residential and non-residential property.
Don’t get caught out
- Where there are joint purchasers, each of them has to be taken into account. We should find out at the Budget whether one of a number of joint purchasers falling foul of the rules will result in extra SDLT on the whole of the purchase price or on just the part of the price relating to that person's proportion.
- As is the usual rule for SDLT, bare trusts are treated as transparent and so the property is treated as owned by the beneficial owner. The consultation proposes to treat in a similar way for the 3% surcharge property where beneficiaries have a life interest or interest in possession.
- Other trusts such as discretionary trusts are not to be treated in this way; the trust will remain opaque and be treated as an entity in itself. However a purchase by a discretionary trust can be caught by the 3% rate even if it does not own another property.
- Generally, companies will be caught by the 3% surcharge on a residential acquisition even if they do not own another residential property.
We will provide further comment on the impact of the changes, following Budget Day. We have a list of points that are unclear in the consultation and will see how the legislation addresses them.