HM Treasury has recently published details of how it will apply the new stamp duty land tax (SDLT) surcharge on second properties from 6 April 2016.
The draft guidance states that an extra 3% stamp duty charge applies where a purchaser(s) owns more than one residential property at the end of the day of its purchase – irrespective of the intended use of the property.
An exception applies to properties bought to replace the main residence, on the condition that the original main residence has been sold. However, if the new main residence is bought before the old one has been sold; the buyer must pay the charge but can claim a refund providing the old one is sold within 18 months.
It is not clear exactly what the definition of ‘main residence’ will be, or how closely it will mirror the principle private residence (PPR) for capital gains tax purposes. There is to be no right to elect which residence is the main residence for SDLT purposes, so HMRC will instead determine it by ‘taking into account ‘a group of ‘factors’.
Properties bought as furnished holiday lets will be treated in the same way as all other residential properties, in that the surcharge will apply if the property is purchased as an additional property.
Married couples and civil partners will be treated as a single unit, so that each couple may only own one main residence between them at any one time for the purposes of the SDLT surcharge. This could cause issues where the property is owned by one member of the couple, as the other member would incur the surcharge if they purchased another property.
HM Treasury has not yet decided how to deal with scenarios where two or more people who are neither married or in a civil partnership purchase property jointly (this could be cohabitee’s, parents and children, property partnerships etc.). If one of the people already owns a property but another does not, then either applying or not applying the surcharge seems unfair to one of the parties. They are inviting suggestions on how to deal with this.
The proposed rules may also present some problems for trusts and their beneficiaries. Those who obtain a life interest or interest in possession (IIP) in a second property will be liable to the surcharge.
If you plan to make a future property purchase you therefore need to take this issue into consideration.