The 2016 budget saw the then chancellor, George Osborne, announce the final mechanics for a higher rate of SDLT for purchases of additional residential UK property. A 3% surcharge applies for contracts completed on or after 1 April 2016 (with an exception where contracts exchanged before 26 November 2015). But how well do we really understand the rules?
The chances are, if you are moving house, you are most likely disposing of your old home whether it is because you are moving up the property ladder and buying a larger property or, because you no longer need such a large home. Either way, if the sale of the former main residence does not complete by the close of play on the day of completion of the new residence, the 3% surcharge of SDLT must be paid. However, the purchaser has the opportunity to reclaim the 3% surcharge once the old residence is sold, provided this happens within 3 years of the new purchase. This is something that is easily missed and can lead to an overpayment of SDLT. In percentage terms, 3% may not sound like much – but for a property costing, say, £600,000, this could lead to a missed reclaim of £18,000 worth of SDLT.
In the case where the purchaser is a property investor acquiring, say, a block 12 flats to let to prospective tenants, the non-residential rates of SDLT will apply to the purchase. This is because any acquisition of 6 or more residential properties is treated as “non-residential”. While this may lead to an overall reduction in the SDLT bill in comparison to the residential rates, it is not always the case. In this respect, the purchaser has the option of electing into the multiple dwellings method when calculating the SDLT due based on the average value of the properties and this can lead to a large saving. This election is available to both individuals and companies purchasing multiple residential properties.
Finally, transactions involving mixed use properties also require care to ensure that SDLT is paid at the correct rate. Such transactions attract non-residential SDLT rates and therefore if missed can lead to the purchaser paying a higher rate of SDLT.
So, the moral of the story… the application of SDLT in respect of residential property can be a complex area and one that is easily missed or misunderstood. Seeking the advice of a specialist tax advisor is recommended before purchasing residential property or if it is believed SDLT has been overpaid. In this respect, we have SDLT experts who can make sure that you are paying the correct amount of SDLT or review the SDLT paid on a previous transaction.
If the transaction has already taken place, there is the opportunity to file an amended return, provided this is done within 12 months of the original filling date. Additionally, where SDLT has been overpaid, there is scope to claim a refund up to 4 years from the date of the purchase on which the SDLT was paid.