As of April 1 2016, anyone purchasing an additional property pays an extra 3% stamp duty. At first glance, it seems the higher rates affect only buy-to-let investors whether they are companies or individuals. However, this is not the case. The higher rates are applicable to married couples or those in a civil partnership too.
According to HMRC, married couples/civil partners will be treated as a single unit for the purposes of the new rules. What this means is any property either partner purchases will be treated as a second home and will carry the extra 3% in stamp duty.
What all are the higher rates applicable to?
The higher rates applies to property you own in England, Wales, Northern Ireland and Scotland. This could mean a holiday home, buy-to-let or even a main residence you plan to live in.
In fact, if you own shares in a ski chalet abroad and are buying your first home in the UK, you will be paying the extra tax too.
How to check if a purchase of a property is liable for the higher rates?
What if the home we’re buying is in the husband or wife’s name?
As mentioned above, married couples and civil partners are treated as a ‘single unit’ by the government. What this means is you will be liable for the higher rates if your spouse or civil partner has an existing residential property.
What if the home we are buying will be our main residence?
You will not be liable for the 3% surcharge if the home you are buying replaces your main residence. This is true even if you own an additional home at the same time. Here’s an example from the Government’s consultation document:
“A owns both a main residence and a second home. She sells her main residence and purchases a new one. Although she has two properties at the end of the day of the transaction, she has replaced her main residence so the higher rates will not apply.”
Can I buy another main residence before I can sell the last one?
Initially you will have to pay a 3% Stamp Duty, if you move out of your main residence (A) but keep it and buy another main residence (B). However, as long as you sell Home A within 36 months of completing the purchase, HMRC will make a full refund.
In fact, the refund applies to the sale of any property that has been your only or main residence at some point during the last 3 years leading to the purchase. What this means is you do not have to be moving directly out of one main residence and in to the new one. The duration of your stay in the previous main residence is not relevant.
What if the home I am buying has a ‘granny annex?’
As long as the annex is bought alongside the main residence, it will not be subject to the higher rates of Stamp Duty. However, an annex must be within the grounds of the main home and worth no more than one-third of the total transaction value.
HMRC explained: “Under the new rules, if you buy a main residence (either your first property or a replacement for a previous main residence) worth £250,000 and an annex capable of separate sale worth £50,000 in a single transaction, Stamp Duty at the standard rates will be charged on the total value of £300,000.”
In case you have paid the extra surcharge under the circumstances since 1 April 2016, you will have it refunded.
What about separated couples?
If you have separated from your husband or wife permanently, but have not formally divorced, you will not be treated as one unit when purchasing a second home.
What are the exemptions?
The following types of property don’t fall under the new stamp duty charges:
8. So what’s changing?
One of the biggest implication of MTD would be the end of the annual tax return. By 2020 most businesses, landlords and self-employed taxpayers will be required to manage their tax affairs online and update HMRC on at least a quarterly basis.
HMRC has confirmed that this doesn’t mean you’ll have to complete four tax returns a year. You’ll simply have to update your information online more regularly.
- Caravans, mobile homes and houseboats and homes costing less than £40,000
- Charities and registered social landlords
- Non-residential property like offices and warehouses
- Mixed-use property such as a flat above a shop
- CGT on the sale profits of an additional home can offset stamp duty surcharge'
Is this unchangeable?
The final policy kicked in on April 1 2016.
Can I get any help?
- Call HMRC stamp duty helpline on 0300 200 3510 (lines open 8.30am to 5pm)
- Write to HMRC
- Tweet to Alan McCappin (Hashtag: #FunnyAccountant #StampDuty)
