Higher rates of SDLT – when do they apply

To purchase a residential property in Northern Ireland or England, you may need to pay stamp duty land tax (SDLT), depending on the value of the property. The tax is different if the property or land is in Scotland and Wales.

The Higher Rates for Stamp Duty Land Tax (SDLT) came into force on 1st?April 2016.? The higher rate is calculated as a 3% surcharge on the standard rates and applies to all purchases of a second or additional residential properties (or part of one) for £40,000 unless an exemption applies.

In this blog we cover all you need to know about higher rates of SDLT, when it applies, how to calculate it and if you can get a refund for it.

What is higher rate SDLT?

Higher rate SDLT is a ‘surcharge’ that generally applies to residential property transactions by individuals where they already own at least one dwelling, unless they are replacing their main residence. The 3% SDLT surcharge will also apply to residential dwellings purchased by companies.

What types of property does SDLT higher rates apply?

• Higher rates only apply to residential property/dwellings and not commercial property purchases or land.
• It applies to residential dwellings all over the world.
• A residential dwelling can be holiday homes, for example cottages or apartments, but not mobile homes, caravans or houseboats.

Do I need to pay higher rate of SDLT?

You must pay the higher SDLT rates when you buy additional residential properties (or a part of one) for £40,000 or more, if all the following applies:

• it will not be the only residential property worth £40,000 or more that you own (or part own) anywhere in the world.
• you have not sold or given away your previous main home.
• no one else has a lease on it which has more than 21 years left to run.

How does this affect your main residence?

You will be exempt from the higher rate if you are replacing your main home, which is being sold. If, at the end of the day of the transaction, an individual owns 2 or more properties and has not replaced their main residence, the higher rates will apply.

You can apply for a repayment of the higher rates of SDLT for additional properties if you’ve sold what was previously your main home if you’re either the:

• main buyer of the property which was charged at the higher SDLT rate.
• agent acting for them.

You must have sold your previous main residence within 3 years of buying the new property to qualify for a refund unless exceptional circumstances apply.

Higher rate SDLT for married couples and civil partnership’s

It’s important to note that married couples, or those in civil partnerships, are treated as a single person by HMRC for SDLT purposes.? The rules apply to you both as if you were buying the property together, even if you’re not.

If either of you individually have to pay the higher rates, you must pay the higher rates for the transaction as a whole (unless you’re permanently separated).

Unmarried couples are treated individually for SDLT purposes by HMRC.

Buying with someone else

The rules apply to each person (and their spouse) who is buying the property.

If any of you individually have to pay the higher rates, you must pay the higher rates for the transaction as a whole.

If I buy a new home before I have sold my old one, do I have to pay stamp duty land tax?

As long as you lived in your old home for 3 years leading up to the purchase of the new home, then although you will be liable to pay the higher rate SDLT, assuming that you sell that first home within 3 years of your purchase of the new one, you may be able to claim back some or all of the additional SDLT that was paid.

You cannot get a refund if:

• you or your spouse still own any part of your previous home.
• the higher rates still apply to you for another reason.

Stamp Duty Land Tax (SDLT) on divorce

In general, there is no exemption for SDLT on transfer of properties between spouses or civil partners living together. The only relief is that the transfers are charged at the standard residential rates and the 3% higher surcharge will not apply on these transfers.

The transfer of properties will be exempt from SDLT if they are in connection with the divorce, dissolving a civil partnership, legally separate or annul their marriage. The exemption will only apply if the transfer is made under a court order, judicial separation or in connection with the dissolution or annulment of the marriage.

Further, the transaction between the couples will normally be exempt and any transfers involving a third-party will still be subject to SDLT.

Trusts

If you’re a trustee buying on behalf of a bare trust, the beneficiary of the trust will be treated as the buyer.

The beneficiary will also be treated as the buyer if a trust holds property, and the beneficiary is entitled to either:

• occupy the property for life.
• receive income from the property

If the beneficiary is under 18, the child’s parents are treated as the buyers (even if they are not the trustees) unless the child is covered by the Mental Capacity Act 2005 or the Mental Capacity Act (Northern Ireland) 2016.

You (the trustee) will be treated as the buyer if it either:

• is not a bare trust.
• does not give the beneficiary a right to occupy a property for life or receive income from it.

If a trustee buys a property but none of these apply (for example, it’s a discretionary trust), the purchase is treated as if it were made by a company rather than an individual.

Companies

Companies must pay the higher rates for any residential property they buy if the:

• property is £40,000 or more.
• interest they buy is not subject to a lease which has more than 21 years left.

If the property costs more than £500,000, the 15% higher threshold SDLT rate for corporate bodies may apply instead.

Partnerships

You have to pay the higher rates if your partnership already owns a residential property, and you purchase another residential property for your partnership.

If you’re a partner but are buying on your own behalf, the rules do not apply to the other partners unless they are your spouse.

You will not have to pay the higher rates if you buy a property for yourself and your only additional properties are used for your partnership’s trade.

SDLT rates for non-UK residents

There is a 2% surcharge on residential properties in England and Northern Ireland bought by non-UK residents on or after 1 April 2021. The 2% surcharge applies on top of all other residential rates of SDLT including the higher rates for additional dwellings.

More information is available on the rates for non-UK residents.

Mini-budget 2022 update on rates of stamp duty land tax

How much is stamp duty?

It was announced in the 2022 mini-budget that from October 2022:

• Stamp Duty Land Tax for those purchasing a residential property applies for purchases above £250,000.
• The level first-time buyers start paying stamp duty was increased to £425,000.
• First-time buyers can access the relief when they buy a property costing less than £625,000.

Conclusion

The higher rate of SDLT is calculated as a 3% surcharge on the standard rates and applies to all purchases of a second or additional residential properties (or part of one) for £40,000 unless an exemption applies.

If you own more than one property or are looking to buy a residential property over and above your main residence, you should seek expert advice on higher rates of stamp duty.

For any queries or advice you require on SDLT contact our team on 03300 886 686, or email on enquiry@dnsaccountants.co.uk.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.