From 1 April 2016, individuals who purchase additional residential properties, second homes or buy-to-let properties will pay an additional 3 percentage points above the existing SDLT rates. The higher rates will apply to property purchases in England, Wales and Northern Ireland. The additional rates are:
- £0 - £125k: 3%
- £125k - £250K: 5%
- £250k - £925k: 8%
- £925k - £1.5m: 13%
- Over £1.5m: 15%
This will add a considerable on-cost for landlords and families that venture into multiple property acquisitions. Without this change, a residential property purchased for £250k would have had a SDLT charge of £2,500. Under the new rates this will increase to £10,000.
Properties purchased for under £40,000, caravans, mobile homes and houseboats will be excluded from the higher rates. Furthermore, small shares in recently inherited properties will not be considered when determining if the higher rates apply.
The budget also clarifies when companies making residential property purchases will be subject to this additional SDLT charge.
In the lead up to the budget it had been speculated that significant, incorporated property businesses would be able to avoid the increase. It would appear that this is not to be.
In the notes to the budget it is clearly stated:
“Companies purchasing residential property will be subject to the higher rates, including the first purchase of a residential property.”
Accordingly, setting up a new company for each property acquisition or transferring existing portfolios into corporate structures will not allow landlords to avoid the additional rates of SDLT on post April 2016 acquisitions.
Indirectly, these changes will also affect sellers of residential property as the SDLT increases may dissuade marginal buyers from purchasing. Will we see affected house prices falling?
In Scotland, property purchases are subject to the Land and Buildings Transaction Tax (LBTT), and from April 2016 a similar 3% will apply to purchases of additional property. The additional rates of LBTT in Scotland are:
- Less than £145k: 3%
- £145k to £250k: 5%
- £250k to £325k: 8%
- £325k to £750k: 13%
- Over £750k: 15%
The surcharge applies to the full purchase price above an initial threshold of £40,000.