Jo Morgan, Associate and Chartered Legal Executive in Coodes Solicitors’ Residential Property team, explains the impact of the 3% stamp duty levy on second homes which came into force today (April 1) and warns many buyers may unexpectedly find themselves caught by the new super-tax.
“While it has been well publicised since first announced by George Osborne in his Autumn Statement, the final details on the 3% stamp duty increase on second homes contained some significant changes when the measures were confirmed in the Budget and these have now come into force.
“From today those buying a residential property, and already owning one, will be subject to the 3% levy. The key exception is that individuals replacing a main residence will not be subject to higher rates where they are selling their previous main residence (even if they also own an additional residential property).
“The effect of the levy is significant. Previously, no duty was currently payable on a £120,000 property, but under the new scheme HMRC will now collect £3,600. On a second home purchase at £275,000 the new duty levy means in a massive hike from £3,750 to £12,000.
“We already have anecdotal evidence of a slowing in new Buy-to-Let enquiries and an increase in the levels of negotiations on price by potential buyers faced with the additional charge of purchasing a property.
“While the measures are one of several designed to take the heat out of the Buy-to-Let market they have the potential to penalise buyers who are a victim of circumstance. Many of our clients currently have the option of purchasing before they sell their current home, perhaps because they are moving to a new area or moving with a first time buyer, without any Stamp Duty Land Tax (SDLT) penalty.
“They will now have to pay the levy when the purchase completes on their new home, however the Government may refund the surplus duty to those who sell their previous main residence within 36 months (up from the originally-proposed 18 months).
“Some key features of the measures which may mean buyers find themselves are unexpectedly faced with paying the levy include:
- If you’re a first time buyer purchasing a property with someone who already owns a home then the levy applies.
- Property owned anywhere in the world will be considered by HMRC when deciding if the higher rate is due.
- Furnished holiday lets, renovations and restricted property purchases will be treated in the same way as other residential properties, so the higher rate applies.
- The Government decided not to apply a previously-considered exemption for significant investors so the over 15 property rule exemption does not apply
“Exemptions to the 3% increase which were confirmed in the budget include the purchase of houseboats, mobile homes and transactions under £40,000.00. A new exclusion introduced by the Government is that a small share (50% or less) in a single property inherited within 36 months prior to the transaction, will not be considered as an additional property.
“So it’s a complex picture and one where buyers should establish at an early stage how it may affect them in their budgeting and finance arrangements, likely price negotiations and ultimately their ability to proceed.”
For further advice and assistance on buying or selling a property, contact Jo Morgan at Coodes by emailing Jo.Morgan@coodes.co.uk or calling 01726 874727.