With MDR relief gone but not entirely forgotten for refund possibilities over the next 12 months, I am turning this month to the 3% surcharge for Stamp Duty Land Tax (SDLT) which applies to purchases of residential property, for example second homes and buy to let properties. But with all things SDLT the rules are nuanced and need careful consideration for each individual transaction.
The general position is that if your client is purchasing a property which at the date of completion is not replacing the clients existing family home, then 3% is payable on top of the SDLT standard rates. A refund is possible within 36 months if the client sells their previous home.
But if we add into the mix divorce, partnerships, inheritance and trusts the situation is further complicated and needs close attention. The following situations are examples.
- Any exception applicable to the surcharge biting for partnerships in reliant on any partnership dwelling being held for a ‘trade’ carried on by the partnership. Point of note, an investment business is not a trade (including professional or vocational premises) and so the surcharge will be payable on any additional properties purchased outside of the partnership, where it is not a replacement of the family home.
- Under Paragraph 3 of Schedule 3 of the Finance Act 2003, transfers of the former matrimonial home under a property adjustment order are exempt from the surcharge, but be careful of the distinction between couples transferring property under a court order on divorce and couples who have simply agreed to separate.
- Where clients purchased their first home they were expecting to benefit from First Time Buyer Relief. One party had a 25% interest in three other properties in France which had been inherited from their mother, but had never lived in France nor in any of the properties. Where a purchase is joint, if either one of the parties own a dwelling or a share of a dwelling, the whole of the purchase is caught. On the basis that the collective value of the interest in those dwellings exceeds the threshold then the 3% surcharge will be incurred. Inherited property provides numerous enquiries, which need to start with understanding the value of the interest held by the beneficiary and whether or not they are intending to dispose of the dwelling or their interest within 3 years; which will assist with calculating any future surcharge due.
- And finally, Trusts. For SDLT purposes there are only two types of trusts: Bare Trusts and Other Trusts. Other Trusts include wholly discretionary trusts, i.e. where there is no named beneficiary. Where a recent client was named in a Will Trust created by a deed of variation he was deemed to have an interest in another property and therefore would not only lose his First Time Buyer exemption, but would also pay 3% surcharge. A double blow.
We are specialists in understanding the legislation and knowing when exemptions and surcharges apply.
Practical key facts to remember. We will:
- Ascertain all of the full facts around the clients purchase.
- If there are other reliefs, see how they interact with the surcharge rules.
- See if there are any exemptions available.
- Your clients should take independent specialist advice, covered by our professional indemnity insurance.
As always if there is anything on your desk that you would rather be on me, then please get in touch.
