From 1 April 2016, purchases of additional residential properties, such as second homes holiday homes and buy to let properties, at a purchase price exceeding £40,000 attract a higher rate of SDLT, known as higher rate on additional dwellings or 3% Stamp Duty Land Tax Surcharge.
The surcharge only applies to purchases of residential properties, such as houses, apartments and flats.
The higher rates of SDLT are part of the UK government’s initiative to promote and support homeownership. The higher rates will apply to most purchases of additional residential properties in England, Wales and Northern Ireland where, at the end of the day of the transaction, individual purchasers own two or more residential properties and are not replacing their main residence.
The higher rates of SDLT do not apply to purchases of the following:
- non-residential or mixed-use properties
- property purchased for chargeable consideration of under £40,000
- caravans, mobile homes and houseboats
- leasehold interests originally granted for a period of seven years or less; or
- freehold or leasehold reversions subject to a lease with more than 21 years unexpired at the date of completion.
For the purposes of determining whether the 3% surcharge is applicable residential properties owned abroad are also relevant. Therefore, if someone is purchasing a residential property in England, Wales or Northern Ireland they may be liable to the higher rates if they already own a property abroad. However, a property already held in a Company will be ignored for the purposes of the SDLT surcharge.
The higher SDLT rate also applies when a company purchases a residential property for £40,000 or more, provided the property is not subject to a lease with more than 21 years unexpired.
Companies are already liable to pay 15% SDLT on the purchase of a residential property for over £500,000 subject to certain exceptions. The new rules will not further increase this rate.
Where the new additional property is purchased by joint purchasers the 3% SDLT surcharge will apply if at least one of the joint owners is subject to the same.
For the purposes of SDLT, married couples and civil partners living together are treated as one unit, therefore if one of a couples or one of the partners already owns a residential property in their own name, then the purchase of a property in the sole name of the other partner will attract the 3% surcharge. However married couples or civil partners who are living separately where the separation is likely to become permanent will not be treated as one unit.
If an individual replaces their main residence, regardless of how many other properties they own, they will escape the 3% SDLT surcharge provided that the purchase of the new property is intended to be their “only and new main residence”.
If the individual has not disposed of their old main residence before the purchase of the new main residence the surcharge is payable. However, if the old main residence is disposed of within 3 years of purchasing the new main residence, the individual can claim a refund. The refund applies to the disposal of any property that has been the purchaser’s only or main residence sometime during the 36 months leading up to the purchase.
A purchaser who owns more than one property and disposes of their main residence without immediately purchasing a new one, will not pay the higher SDLT rate provided the following two conditions are satisfied:
- they purchase a replacement main residence within three years of the sale and
- at any time during that period of three years the property sold had been the purchaser’s main residence.
The Main Residence Test
HMRC guidance states that where an individual resides at only one dwelling, that will be their only or main residence. However, where an individual resides at more than one dwelling, all of the facts and circumstances of the particular case need to be considered carefully in order to determine which residence is the main residence. The rules do not permit an individual to nominate which dwelling is their main residence.
The main residence is not necessarily the residence where the individual spends the majority of their time. There needs to be a permanence and expectation of continuation to the occupation to establish it as a main residence.
The HMRC gives the following list of points to consider, which may be useful in establishing which residence is an individual’s main residence,
- If the individual is married or in a civil partnership, where does the family spend its time?
- If the individual has children, where do they go to school?
- At which residence is the individual registered to vote?
- Where is the individual’s place of work?
- How is each residence furnished?
- Which address is used for correspondence?
- Where is the individual registered with a doctor / dentist?
- At which address is the individual’s car registered and insured?
- Which address is the main residence for council tax?
The table below sets out the higher rates of SDLT payable on the purchase of additional residential property from 1st April 2016 as applicable to each slice of the purchase price
| Purchase Price | New Property Additional SDLT Rates |
| Up to £125,000 | 3% |
| £125,001 – £250,000 | 5% |
| £250,001 – £925,000 | 8% |
| £925,001 – £1.5m | 13% |
| over £1.5m | 15% |
Note: SDLT will be paid on portion of price within each of the above listed band.
There is a calculator available on the gov.uk website which can be used to calculate the amount of SDLT payable on purchases of additional residential properties: www.tax.service.gov.uk/calculate-stamp-duty-land-tax
About the Author
