HMRC has published updated guidance on higher rates of Stamp Duty Land Tax (SDLT) that apply on buying an additional residential property for £40,000 or more. It covers who has to pay, the property it applies to and claiming a refund.
Note that SDLT isn’t payable on a property bought in:
• Scotland from 1 April 2015 – instead Land and Buildings Transaction Tax (LBTT) is payable;
• Wales from 1 April 2018 – instead Land Transaction Tax (LTT) is payable.
Who has to pay the higher rates of SDLT?
The higher rates apply even if the buyer intends to live in the property that they are buying (and regardless of whether or not they already own a residential property). This is because the rules don’t just apply to the buyer, but also to anyone they are married to, in a civil partnership with, or buying with.
Married couples and civil partners
- The rules apply to both individuals as if they were buying the property together, even if they’re not.
- If either of them individually has to pay the higher rates, he or she must pay the higher rates for the transaction as a whole (unless they are permanently separated).
- Buying with someone else
- The rules apply to each person (and their spouse or civil partner) who is buying the property.
- If any of them individually has to pay the higher rates, he or she must pay the higher rates for the transaction as a whole.
- Buying as a trustee
- The rules may apply to the beneficiary of the trust and not to the trustee, depending on the type of trust it is.
- If the trustee is buying on behalf of a bare / absolute trust, the beneficiary of the trust will be treated as the buyer.
The beneficiary will also be treated as the buyer if a trust holds property and the beneficiary is entitled to any of the following:
- occupy the property for life;
- receive income from the property.
If the beneficiary is under 18, the child’s parents are treated as the buyers (even if they are not the trustees) unless the child is covered by the Mental Capacity Act 2005 or the Mental Capacity Act [Northern Ireland] 2016.
The trustee will be treated as the buyer if it either:
Buying as a company
- is not a bare / absolute trust;
- does not give the beneficiary a right to occupy a property for life or receive income from it.
- If a trustee buys a property but none of the above apply (for example it’s a discretionary trust), the purchase is treated as if it were made by a company rather than an individual.
• Companies must pay the higher rates for any residential property they buy if:
• the property is £40,000 or more;
• the interest they buy is not subject to a lease which has more than 21 years left.
• If the property costs more than £500,000, the 15% higher threshold SDLT rate for corporate bodies may apply instead. This can apply to companies, partnerships that include companies and collective investment schemes. HMRC provides further guidance.
• These bodies may also need to pay the Annual Tax on Enveloped Dwellings (ATED).
An individual has to pay the higher rates of SDLT if their partnership already owns a residential property and he or she purchases another residential property for their partnership.
What property the higher rates of SDLT apply to?
Once it’s been established who the rules apply to, it’s necessary to work out how many residential properties each of the buyers will own at the end of the day of their new purchase.
If any of the buyers will own, or part own more than one residential property worth £40,000 or more, he or she will have to pay the higher rates on their new purchase (unless there is another reason why the higher rates do not apply).
It’s necessary to include any residential property that:
- is owned on behalf of children under the age of 18 (parents are treated as the owners even if the property is held through a trust and they are not the trustees);
- the buyer has an interest in as the beneficiary of a trust.
The buyer’s current home must be included if they still own it at the end of the day that he or she buys the new home.
The buyer will pay the higher rates on everything they pay, or give, for the purchase. That might include another type of payment such as:
• works or services;
• release from a debt;
• transfer of a debt, including the value of any outstanding mortgage.
HMRC guidance provides further information on how to work out the consideration in complex situations.
When the higher rates of SDLT don’t apply
The higher rates do not apply to certain people, property and transactions. In addition, certain reliefs may apply.
People - The higher rates of SDLT don’t apply to anyone who will both:
• use their new property as their main home;
• have sold or given away the last main home they owned before they buy their new home (or on the same day).
- The higher rates of SDLT don’t apply to a property (or part of a property) if any of the following apply:
• the property is worth less than £40,000;
• it’s a mixture of residential and non-residential (like a shop with a flat above it);
• it’s ‘moveable’ like a caravan, houseboat or mobile home (unless it has become a permanent fixture).
The rules also don’t apply to purchases of:
• a leasehold interest originally granted for a period of less than seven years; or
• a freehold or leasehold interest that is subject to a lease with more than 21 years remaining.
Transactions - If one spouse or civil partner is transferring ownership (or part ownership) of a residential property to their spouse, the higher rates of SDLT don’t apply as long as no one else is involved in the transfer.
The higher rates of SDLT don’t apply if a person is increasing the amount of a property that they already own, provided all of the following apply:
• they already own 25% or more;
• the dwelling has been their only or main home for the previous 3 years;
• (if they’re extending a lease) their lease still has 21 years or more left to run.
Multiple dwellings relief - Someone buying 6 or more properties can choose to pay either the:
• non-residential rates of SDLT (not the higher rates);
• higher rates using multiple dwellings relief.
HMRC guidance provides further information on what reliefs are available.
When and how to get a refund
If someone sells their previous main home after they buy their new home they must pay the higher rates of SDLT and its only if they then sell or give away their previous main home within three years of buying their new home that they can apply for a refund of the higher SDLT rate part of their Stamp Duty bill.
A repayment can be applied for within three months of the sale of the previous main residence or within 12 months of the filing date of the return, whichever is the later, by:
• using the online form (by signing in or setting up a Government Gateway account);
• filling in the form on-screen, printing it off and posting it to HMRC.
Links to these forms can be found here.
Note that a refund can’t be claimed if the individual or their spouse / civil partner still owns any part of their previous home
The time limit for filing a SDLT return and paying any tax due will be reduced from 30 days to 14 days for land transactions with an effective date on or after 1 March 2019.