As of April 2016 the Government has made changes to the duty payable in respect of Stamp Duty Land Tax. The changes have significant impact on property buyers purchasing a second home or a buy to let property. Below we examine how the changes practically affect individuals compared to the old Stamp Duty Land Tax rules.
Old Stamp Duty Land Tax rules
The stamp duty tax brackets for those purchasing a residential property are as follows:
- 0% on properties worth up to £125,000
- 2% up to £250,000
- 5% up to £925,000
- 10% up to £1.5 million
- 12% above £1.5 million
A ‘sliding scale’ of payment was introduced in 2014, so that purchasers now pay the tax on the property’s value within each bracket, rather than on the whole property price.
Until the April 2016 changes, these rates applied to all types of buyers, including buy to let and second home buyers. While the rates still apply to those buying a house as their main residence, under the 2016 changes other types of buyers now pay much higher rates.
New Stamp Duty Land Tax rules
The banding system has now dramatically changed if you are a purchaser buying an additional property:
- Properties worth £0 – £125,000 – 3%
- Properties worth £125,001 – £250,000 – 5%
- Properties worth £250,001 – £925,000 – 8%
- Properties worth £925,001 – £1.5m – 13%
- Properties worth £1.5m and over – 15%
When do you have to pay the higher rate?
Here are some examples of when you would be eligible for the higher stamp duty rates:
- If you own more than one property and are not replacing your main residence
- If your main residence is abroad and you are buying a further property in the UK
- If you are selling a property and buying another but the sale completes after the purchase (however you would have three years to claim a refund)
- If you are a couple where one person already owns a property
- If you are a parent wanting to purchase a property for your children.
Moving forward…
Many purchasers will be affected by the new higher rates, and full disclosure in all circumstances is fundamental to avoid any tax avoidance issues which could arise.
It is vital to take expert advice if you are considering buying a second home or buy to let property.
Nelsons has a specialist team of residential property experts who can help with all aspects of property sales and purchases. If you would like more information, please contact us or call 0800 024 1976 to speak to a one of our Conveyancing Solicitors.