New tax dangers when buying residential property

The Chancellor announced in his Autumn Statement in November 2015 that he would be introducing new rates of Stamp Duty Land Tax (SDLT) on purchases of buy to let properties or second homes. Few perhaps realised how much more complicated property transactions may well be as a result.

At the end of December the government launched a consultation paper which revealed the proposed details of the regime. SDLT does not cover property transactions in Scotland. However, the Scottish government has introduced a bill in the Scottish Parliament at the end of January 2016 which proposes similar changes to the Land and Buildings Transaction Tax (LBTT).

The impact of the additional taxes is potentially wide ranging. If a purchaser falls within the regimes, the SDLT and LBTT additional charges are 3% on the full price and so the charge on a property costing £200,000 increases by £6,000.

It is proposed that the additional charges will potentially apply if, at the end of the day of the purchase transaction, the individual owns two or more residential properties. Married couples are to be treated as one unit. There will be an exemption if the purchaser has sold their main residence and purchased a property which is to be their new main residence. But there will be some purchasers who will have to pay the additional charge even though the property purchased will not be a buy to let or a second home. Examples include:

• Mr A has bought a property which will be his new main residence but he has been unable to sell his previous main residence. He will be subject to the additional charge! It is proposed that a refund will be available but only if the previous main residence is sold within 18 months.
• Mr and Mrs B own one main residence. Mrs B decides to help her daughter buy her first house and makes a joint purchase of the property with her daughter. The higher rates will apply to the total price paid.

The measures are expected to come into effect for completions on or after 1 April 2016 so make sure you consider the proposals before entering into purchase contracts.