Sharp rise in SDLT for buy to let landlords and second home owners

The 2015 autumn statement announced a rise in the rate of Stamp Duty Land Tax (SDLT) for the purchase of additional homes and buy to let properties.

In the Chancellor's autumn statement released 25th November 2015, he announced a rise in the rate of Stamp Duty Land Tax (SDLT) for the purchase of second or additional homes and buy to let properties.  From 1 April 2016 onwards, properties with a value in excess of £40,000 will be subject to an enhanced rate of SDLT.

The higher rates will be 3% above the current SDLT rates for residential property. Therefore, the following SDLT rates will apply on a progressive basis to acquisitions of such residential property:

• £0 to £125,000: 3% *
• £125,001 to £250,000: 5%
• £250,001 to £925,000: 8%
• £925,001 to £1.5 million: 13%
• Over £1.5 million: 15%

*Although if the price is less than £40,000 the purchase will not require an SDLT return or tax payment. If it is over £40,000 the whole of that band will be chargeable at 3%.

This increase only affects new purchases, and will not have any effect on properties already held on the date the changes come into effect.  HMRC has confirmed that the changes will apply to all completions that take place on or after 1 April 2016, but contracts that have been entered into on or before 25 November 2015 will not be subject to the new rates, subject to normal rules about variation or assignment of these contracts.

The announcement appears to be targeted at private landlords and purchasers of second homes, but will no doubt have a significant impact for large estates and holiday lettings businesses.

The government is to consult on the detail, including whether companies and funds holding more than 15 properties should be exempt from this increase.  What is meant by 'funds' is not clear, particularly whether this would include other forms of ownership such as partnerships or trusts. 

As is customary, the announcement was light on detail, even concerning individual owners.  However, the Government have confirmed since the original announcement that the changes will not apply to the purchase of a main residence or to corporates and funds making significant investments in residential property.  There still remain uncertainties though – what is a "significant investment", and if the rules apply to individuals rather than married couples, could it be advantageous to transfer the family home into one spouse's name so the other spouse can purchase the second home?

How the proposed exemption will affect property investment companies is also not clear.  For example, would a single building converted into seven self-contained flats be classed as a single property or seven?  Elsewhere in the SDLT legislation, the term dwelling is used (meaning a self contained accommodation, e.g. a single flat in the above example), so it remains to be seen whether this will also apply here.

This announcement may be of particular concern to private landlords who were considering incorporating a personally held portfolio of properties into a limited company, following the restrictions to the deductibility of mortgage interest announced in the last budget.  However, there are reliefs that may apply, regardless of whether the proposed 15 property threshold is reached.  In fact, these changes could be another argument for larger landlords to incorporate, if new purchases are planned.

As another sting in the tail, the government is to consult on reducing the time limit for the payment of SDLT for all purchases, though this proposed change would not be implemented before 2017.

There will be a consultation document issued soon we are told, so those with an interest may want to respond to that when it is available.

At Wrigleys, we will be carefully following the progress of these changes, and will report on any updates.

3 December 2015

(This article has been adapted following updates in the law. Our original article was posted on Budget day, 25 November 2015)