Additional Home Surcharge
The new surcharge on residential property purchases came into force on 1 April 2016. Where applicable the stamp duty land tax (SDLT) higher rates transaction charge will add an extra 3% slab tax to any additional residential property purchased.
What about replacement of main residence?
For private individuals the surcharge is payable when the individual acquires ownership or a major interest in a dwelling and ends up owning or having a major interest in more than one dwelling at the end of completion day.
When a main residence is being replaced, the surcharge can be avoided if the old main residence is sold within a designated timeframe before or after completion. In order for this to apply, the purchaser must intend to use the new home as their main residence at the time of completion.
The usual rules and definitions apply as to what constitutes only or main residence and this is more a matter of fact than a simple test. It is worth noting there is a large volume of precedent that requires quality of occupation as opposed to quantity, and simply having bills forwarded to an address for a length of time will not make a property your main residence.
For anti-avoidance reasons the surcharge is administered under a system of upfront charge and rebate. The surcharge must be paid if the sale takes place after 30 days of the new purchase. A rebate can potentially be reclaimed if the purchase follows within the designated timeframe.
For most people moving home this change will not impact, however if you are utilising a bridge facility to move home, then you may have additional cash flow concerns if you are unable to complete the purchase within 30 days.
The main impact of these changes will be the aspiring landlord. With Buy-To-Let yields already under immense pressure and funding harder to come by, this increase in taxation can only add to the downward pressure on this already stalling market. There are mitigation options however planning in this space is essential.
If you have any questions or concerns how these or other recent tax changes will impact you, contact us today for a free no obligation consultation.