Couples – beware of the stamp duty surcharge
Are you or your spouse/civil partner considering purchasing a property? If so, it may be subject to the higher rate of Stamp Duty Land Tax (SDLT).
Before delving in to the detail, let’s first remind ourselves of what SDLT is. In simple terms, it is a tax on the purchase of land and property which is calculated as a percentage of the ‘chargeable consideration’ – this being anything of monetary value that the purchaser gives in exchange for the land or property. For more information on how the tax is calculated, you can read our previous blog here.
In April 2016, a new rule was introduced that applied a 3% SDLT surcharge to anyone purchasing an additional residential property. Whether the higher rate applies or not depends on the number of residential properties that the purchaser has at the end of the day of the transaction.
For many, it will be a relatively straightforward exercise to determine whether the surcharge applies. However, for couples, who are treated by HMRC as one unit, that task becomes decidedly less simple. In their case, properties owned by either partner separately (and any minor child) are also considered relevant when determining if an additional residence is purchased or not.
Let’s imagine two scenarios to see how this applies in practice. In scenario 1, Mr and Mrs A own a residence together and they decide to jointly buy a second home. As expected, the purchase will be subject to the higher rate of SDLT. In scenario 2, Mr A owns a home that he bought before his marriage to Mrs A, and which is their main residence. Mrs A now plans to buy a property in her own name. Although she doesn’t already own a share of a property, the higher rate of SDLT will apply because of the house that Mr A owns and the treatment of couples as being one entity.
One caveat to this rule is that if a couple own more than one property at the end of the day of a transaction, but they replaced their main residence, the higher rate won’t apply.
If you are planning to purchase a property and are unsure whether the higher rate of SDLT applies or not, please do get in touch.