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Understanding the 3% stamp duty hike

By Bea Patel on in Buying

Understanding the 3% stamp duty hike

In Chancellor George Osborne’s 2015 Autumn statement, he announced an extra three per cent stamp duty land tax (SDLT) charge for buy-to-let and second homebuyers, coming into effect on 1 April 2016. Its introduction is part of the Government’s aim to re-focus support for housing, making homeownership easier for first-time buyers.

The introduction of higher SDLT will affect domestic and foreign purchasers of a second residential property in the UK worth over £40,000. It won’t however apply to mobile homes, houseboats and caravans. It’s important to remember that the extra three per cent surcharge is on top of the current stamp duty rates.

To avoid paying this additional charge, you will need to exchange and complete on any second home by midnight on 31 March 2016. But if your contract was exchanged before 25 November 2015 – the date the extra charge was announced, and completes after the 31 March 2016, you won’t have to pay the additional three per cent charge.

The table below shows the existing and additional three percentage points SDLT rates for each band for additional residential properties purchased on or after 1 April 2016. You won’t have to pay the higher rates for transactions under £40,000.

Table of SDLT rates - Shop for an Agent

Although there are many variations to the rules depending on your individual circumstances, we’ve put together answers to some of the common questions surrounding the extra SDLT:

Who does it apply to?

The additional SDLT charge applies to anyone buying a second residential property in England, Wales and Northern Ireland, for example a buy-to-let or holiday home – even if you part-own the first property. It also applies if you own or part-own an overseas property and you’re buying your first home in the UK. If you’re buying a property with a partner and one of you already owns a property, you’ll still have to pay the surcharge.

Do I have to pay SDLT if the home I’m buying will be my main residence, but I can’t sell my previous home before I buy my new home?

If you’re looking to move homes but unable to sell your previous home before you buy your new home, you’ll have to pay the three per cent surcharge. However, if you then sell your previous home with 36 months of purchasing your new home, HMRC will refund you the surcharge.

This also applies if you own more than one property at the same time but you’re replacing your main residence. For example, if you own your main residence and a holiday home but you’re replacing only your main residence, you won’t be subject to the additional SDLT, as outlined in the Government’s consultation document:

“[A person] owns both a main residence and a second home. She sells her main residence and purchases a new one. Although she has two properties at the end of the day of the transaction, she has replaced her main residence so the higher rates will not apply.”

What if I’m selling my main residence abroad and I can’t buy my home in the UK straight away?

If you can’t buy your home immediately, you’ll be given a 36-month grace period to buy a property and there will be no surcharge during this time.

What if I inherit a property?

There is no SDLT on inherited properties. But if you buy a second home after inheriting a property, you’ll have to pay the surcharge – unless you sell it. If you own 50 per cent or less in your inherited property and you inherited it within 36 months before buying another home, it won’t be considered as an additional home – so you’re not liable to pay the additional rates.

Are there any exemptions?

There is no SDLT on mobile homes, houseboats and caravans, or on any properties worth under £40,000.

What are the rules for married couples and civil partners?

The Government will treat married couples and civil partners living together as one unit. So as a unit, if you own one property you will not pay the higher rates of SDLT unless you decide to buy a second home. You’ll also have to pay the SDLT if you, your spouse or civil partner has an existing residential property – but if you go on to sell this within 36 months from the purchase of your new home, you can claim a refund.

What happens if I’m separated?

You will be treated as a unit unless you’re separated under a court order or by a formal Deed of Separation executed under seal. If your legal situation means you’d be liable for paying the three per cent surcharge, but you’re separated, you won’t have to pay it.

Do I have to pay the additional SDLT charges?

The topic of the higher SDLT can be complicated and you may not know if you’re liable to pay the additional surcharge. Below is a flowchart to help you determine if you have to pay the extra three per cent charge on top of the existing stamp duty rate.

SDLT Flowchart - Shop for an Agent

We’ve also created a handy infographic with some example scenarios of when you would or wouldn’t have to pay the additional stamp duty rates:

3 per cent SDLT Examples infographic - Shop for an Agent