Radical & complicated changes to Stamp Duty came into effect on April 1st 2016. here we answer questions you have been asking us as to how you will be affected.
Q. What is the 3% Stamp Duty surcharge?
A. It's a 3% additional charge added to existing Stamp Duty rates.
Q. Who has to pay it?
A. Anyone who is buying an additional residential property, for example a holiday home or buy-to-let, within England, Wales, Northern Ireland and - under a separate announcement in the Scottish Government's Budget - in Scotland too.The surcharge will apply even if the home you already own (or part-own) is overseas. So, if you have a villa in Italy and are buying your first home in the UK, you would still be liable to pay the extra tax.
Q. When does it apply?
A. The new surcharge takes effect from April 1st 2016 and was first announced in the Chancellor’s 2015 Spending Review.
Q. Could you avoid paying it?
Only if you completed the purchase (not just exchanged contracts) of any second home by midnight on March 31st 2016 (unless you had already exchanged contracts on or before November 25th 2015.
Q. How is the tax charged?
A. Stamp Duty is, these days, charged on a tiered basis so you only pay the higher rate on the slice above any threshold but the 3% surcharge will still effectively apply to the entire purchase price of the property.
Q. How much does that translate into?
A. If, for example, you are buying a second home with a purchase price of £300,000, the extra 3% Stamp Duty would be £9,000 (3% of the entire price) in addition to the £5,000 regular Stamp Duty bill on a home of this value, making the total payable £14,000.
Q. What if the home I am buying will be my main residence?
A. If the home you are buying directly replaces your main residence, you will not be liable for the 3% surcharge, even if you own an additional home/s at the same time. This example is straight from the Government's consultation document:
"A owns both a main residence and a second home. She sells her main residence and purchases a new one. Although she has two properties at the end of the day of the transaction, she has replaced her main residence so the higher rates will not apply."
However, the Treasury says that moving out of rented accommodation does NOT constitute a main residence. Your last residence will need to be disposed of (i.e. sold) to escape the surcharge.
Gifting a property however, DOES constitute disposing of your main residence.
Q. What if I need to buy another main residence before I can sell my last one?
A. If you move out of your main residence (Home A) but keep it and buy another main residence (Home B), you will have to pay the 3% Stamp Duty surcharge initially. However, so long as you sell Home A within 36 months (increased from 18 months in the March 2016 Budget) of completing on the purchase of Home B, HMRC will make a full refund.
If you sold your main residence before November 25th 2015, you will have longer to buy a new main residence before being charged the higher rates. In this case, the clock will start ticking on the 36-month period, from either 25 November OR the date you sold your last main residence - whichever is later.
Q. What if I am getting divorced but my name is still on the deeds of my family home?
A. If you are separated or getting divorced and want to buy a new home to live in but your name is still on the deeds of the family home (which is NOT being sold), this will constitute buying an additional property which means the 3% surcharge will apply.
Q. What happens if I'm separated but still legally married?
A. After the March 2016 Budget, the Government confirmed that married couples who are living separately in circumstances that are likely to become permanent will NOT be treated as one unit for the purposes of the 3% surcharge. In other words, if you are buying a home that only incurs the 3% surcharge on the basis of your legal spouse's situation, you won't have to pay it.
Q. Can I avoid the surcharge by setting up a limited company?
A. The Government has a keen eye on preventing tax avoidance with this new levy, so you won't be able to escape the surcharge by setting up a limited company for the purpose of buying an additional home or homes. We're currently waiting on more information from the Treasury on how this will work for existing limited companies.
Q. Can I just not tell my solicitor that I already have a home?
A. HMRC has instructed solicitors to ask buyers outright whether they already own another property. If you don’t answer truthfully it’s tantamount to fraud - penalties for which could be a lot worse than a 3% Stamp Duty loading.
Q. Are there any exemptions?
A. You won’t pay the 3% Stamp Duty surcharge on second homes that cost less than £40,000 or on caravans, mobile homes and houseboats.
Social landlords and charities won't be charged the 3% loading.
And, while it's not an exemption, it's worth noting that if you pay Capital Gains Tax on the sale profits of an additional home, you can offset the cost of the 3% Stamp Duty surcharge against your bill.
Q. What if I inherit my property?
A. No Stamp Duty is payable on properties that are inherited, so the 3% premium will not be relevant. However, if you have inherited a property and go onto purchase a second home without selling it, you will be hit with the surcharge.