The controversial 3% Stamp Duty Land Tax surcharge that was introduced by the government in April 2016, left many people confused. Following is a Q & A list that will make it easier for you to understand these new rules, and the impact it would have on you when you are planning to buy another home.
Q. What exactly is the Stamp Duty Land Tax (SDLT) surcharge?
A. This surcharge adds a further 3% on former Stamp Duty rates for those buying a property in addition to their main residence. Previously, anyone purchasing any property for less than £125,000, was not required to pay Stamp Duty, but, with the new surcharge in place, buyers in this price range will now also have to pay the SDLT of 3% if they already own another residential property.
Q. When did the new rates come into effect?
A. The new rates were announced in December 2015 in the Chancellor’s Autumn Statement, and came into effect on April 1, 2016. Property purchasers were given until midnight on March 31, 2016 to complete, and not simply exchange on second home purchases, to get around paying these increased taxes. This time limit resulted in a rush of home purchases being completed by the end of March 2016.
Q. To whom do these new rates apply?
A. These new rates are applicable to anyone purchasing a second home priced from £40,000 and more, and includes buy-to-let properties and holiday homes. In some cases, the new rates apply to the purchasing of main residences too, should the buyer already be a shareholder in another property that has a value of more than £40,000.
Q. What does Stamp Duty cost?
A. Anyone purchasing a second home for an amount of £400,000 for example, would have to pay a Stamp Duty surcharge of £17,500. The costs involved would be £125,000 x 3% = £3,750, along with the remaining £275,000 x 5% = £13,750, making the total bill £17,500.
Q. Will I have to pay the extra charge if I buy a new property as my main residence?
A. You will not have to pay the extra 3% if the new property you purchase is to replace your current home, even if you are the owner of other properties as a second home or a buy-to-let, since the new property you buy is to replace your main residence.
Q. How are these rules applied if I am already a homeowner, but the person that I want to buy another property with, is not?
A. If only one of the two people wanting to purchase a property is already a property owner, then the 3% surcharge will still apply to the full amount of the purchase, except if the new property is a replacement of the other person’s main residence.
Q. What if my spouse and I are getting divorced and the house we bought when we got married is not yet sold?
A. As these cases are considered to be the same as buying an extra property, the 3% surcharge rules still apply, if the value of the house you each own is more than £40,000.
Further information is available at http://www.whathouse.com/advice/stamp-duty-qa/#zDHoH3OE958BM1Cj.99