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The 2016 Stamp Duty Reforms: What do they mean for you?18th March 2016 Real Estate Residential
n the 2015 Autumn Statement and Spending Review, the Government confirmed plans to increase Stamp Duty on additional residences. After a consultation period, the final position was confirmed in the Chancellor's budget on 16th March 2016, and will be implemented by way of amendment to the Finance Act 2003. The higher rate will become payable on purchases of additional dwellings above £40,000 at 3% above the current rates of Stamp Duty, and will come into effect from 1st April 2016.
Firstly, it is important to note that these new measures apply only to what the Government describes as 'additional dwellings'. Therefore, for those going through the process of selling the home they live in to purchase a new one, these new rates will not apply, provided that completion of both occurs on the same day, the focus being on the number of properties owned at the end of the day of the transaction. If completion of the purchase occurs before completion of the sale, the sale property must be sold within three years (increased from the 18 months suggested in the consultation documentation), in order to obtain a refund on the additional Stamp Duty paid. It is not yet clear how the application to obtain a rebate on duty will work in practice.
The majority of people caught by this new legislation will be buy-to-let property investors, who are not replacing their current home when purchasing a property, but intend to let the new property out to a tenant, with the exception of those who do not already own any properties. For example, if a property was purchased for £180,000, and replaced the buyers' current home, or was the only property owned by them at the end of the day of completion, the new rules would not apply and Stamp Duty will be payable at 2% of the purchase price over £125,000; so £1,100.
If the same property was purchased by someone who owned more than one property at the end of the day of completion; and was not replacing their main residence with this property; the new increased rate would apply and give rise to an increase Stamp Duty liability of £6,500 (based on a purchase price of £180,000). This is made up of 3% of the price between £0 and £125,000 (£3,750), and 5% of the remaining price (£2,750).
Understandably there is concern not only amongst buy to let investors who face much higher tax bills, but also there is a general view in the market that this could affect the supply of rental properties into the market; causing increased rental rates.
There is specific provision in the new rules for married couples and civil partners who purchase additional dwellings. The Bill implements Stamp Duty at a higher rate for purchasers who are married to, or in a civil partnership with, someone who already owns a property at the end of the day of completion, providing the new purchase is not a replacement of the home, and regardless of whether the person owning the additional residence is a purchaser of the new property or not. They will effectively be treated as one person for the purposes of Stamp Duty, with the exception of those treated as not living together. No such provision appears to have been made for co-habitees.
Amendments have also been made in relation to Stamp Duty payable in relation to purchases under bare trusts and settlements, properties inherited under a will or by way of intestacy, and purchases made by partnerships and companies.
It was proposed in the initial consultation documentation that an exemption to the increased rate was being considered for 'large scale investors' (suggested to be those owning at least 15 properties). However, this has not been implemented in the final provisions, although multiple dwelling relief remains in place for those purchasing many properties in one transaction.
There is some cheer however, for commercial property investors as changes have also been introduced to the Stamp Duty rates for non-residential properties, which came into effect from midnight on 16th March 2016. Non-residential properties are considered to be shops; offices; agricultural land and any other land or property which is not used as a residence. In contrast to the increase in Stamp Duty on additional residences, the amount payable in most transactions will reduce. Continuing the example above; if a property was purchased for £180,000, but fell into the non-residential category, the Stamp Duty payable would be £600. This is made up of 2% of the portion of the purchase price between £150,000 and £250,000, as no liability is created for purchases under £150,000.
The above is a brief overview only of the changes in Stamp Duty. For more information or to speak to someone regarding the new rules, please contact JMW and we will be happy to assist with your enquiry.