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20 September 2016

3% Stamp Duty surcharge on second homes

Question.

I own my own home jointly with my wife and my eldest son is starting university next month. I am in the process of buying an investment property for him to live in when he is at university. Will I have to pay the additional 3% Stamp Duty Land tax (SDLT) charge on the purchase of this property?

Answer.

From 1 April 2016 anyone buying a second home for any reason will pay a higher rate of stamp duty than someone buying a property which will be their main home.

SDLT is a tax paid by homebuyers when they buy property or land. On your main home the tax is paid if the purchase price is over £125,000. The amount paid is assessed on a tiered basis.

What counts as a second home is anything other than your main residence – it could be a holiday let, a property bought as an investment or somewhere you are helping another family member to buy. The new surcharge will also apply even if the main home you currently own is overseas.

You will pay the increased duty on the investment property for your son if the property costs more than £40,000. For each tier you would pay a rate three percentage points higher.

This means:

  • On a property costing up to £125,000 you will pay 3%, rather than 0%
  • On a property costing £125,000 – £250,000 you pay 5%, rather than 2%
  • On a property costing £250,000 – £925,000 you pay 8%, rather than 5%
  • On a property costing £925,000 – £1.5m you pay 13%, rather than 10%
  • On a property costing £1.5m+ you pay 15%, rather than 12%

So a house costing £100,000 would have a bill of £3,000. On a £200,000 property you would pay £7,500 (3% on the first £125,000 then 5% on the next £75,000), and if you were spending £350,000 on a second home you would pay £18,000 (3% on the first £125,000, 5% on the next £125,000 then 8% on the remaining £100,000).

Where parents buy a property for their child and are named on the deeds while already owning a property, you will be charged the additional stamp duty. Helping your child out with a gift of a deposit will not be a problem but part-owning the property will create an additional tax charge. To avoid the additional stamp duty charge it would be necessary to have your son purchase the property in his name.

The new rates would even apply if you are buying a second property to replace your existing home, without selling your home first, you will need to pay the surcharge. However, you can request a refund if you sell your first home within three years.

It is also worth noting that the rate of capital gains (CGT) tax will still be 28% on a future disposal of residential property as whilst the main rate of CGT was cut from 28% to 20% for higher rate taxpayers and to 10 per cent for basic rate taxpayers, however, this cut was not extended to include residential property.

The advice above is specific to the facts surrounding the questions posed. Neither FPM nor the contributors accept any liability for any direct or indirect loss arising from any reliance placed on replies.
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