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Stamp Duty Land Tax: the 3% surcharge for residential property

Posted on 29 January 2016

Stamp Duty Land Tax: the 3% surcharge for residential property

With effect from 1 April this year, the so-called "additional rate" of Stamp Duty Land Tax (SDLT) will come into force for purchases of residential property.  Where it applies, an additional 3% SDLT will be payable on each "slice" of the relevant price, as set out below:


Existing residential 
SDLT rates

New additional property SDLT rates

£0* - £125k



£125k - £250k



£250k - £925k



£925k - £1.5m



£1.5m +



*Transactions under £40,000 are not subject to the higher rates.

The precise detail is currently being consulted on (NB the consultation closes on 1 February 2016 and Mishcon de Reya LLP will be responding).  A policy driver behind the proposal is to support home ownership, by increasing the costs for buy to let landlords who directly compete with home buyers for limited stock and so drive up prices.

The additional rate will be relevant for any person who at the end of any given day owns more than one residential property. So where a person owns two or more residential properties at the end of any day, the additional rate will prima facie apply to any acquisition of residential property.  The main exception to this will be where the purchase is replacing their main home.  This includes where a person's main home has been sold in the 18 months prior to the new purchase, and a refund of the additional SDLT will be made if the original home is sold within 18 months of the new purchase.

Whether a property is a main home will be a question of fact, although it is clear that properties with a value of less than £40,000 will be ignored. So a person who owns a buy to let property and rents a flat at a market rent, which they live in, will be caught by the new rules if they subsequently buy a residential property to live in. This is because the flat would be ignored - the lease would have minimal capital value - and so the person would not be considered to be "replacing" their main home.  Under current proposals, joint purchasers and married couples will be treated as a single person for the purposes of the new rules – so if either of them owns an existing residential property, the additional rate may apply even if the other purchaser is a first time buyer.

A key part of the consultation is whether the Government enacts a relief for larger scale purchases, which it considers may encourage development.  The current proposal is that any person acquiring more than 15 residential properties would be outside the new charge, but clearly grey areas remain.  What happens if a person acquires 14 homes and then a further home six months later?

All the detail remains to be ironed out, but it is clear that there may be some arbitrary SDLT differences in similar scenarios.

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