By Steven Pinhey, Tax Director
Moving in together can be an exciting and thrilling time and a real game changer for most couples.
Where both parties are fortunate enough to have their own place but have decided that they want to make a fresh start together in a new home, decisions have to be made about where that new home should be and what to do with the existing properties - should they be sold or kept and rented out?
The one thing that probably isn’t on “loves young dream’s” mind is the Stamp Duty Land Tax (‘SDLT’) implications of moving in together – but with an extra 3% at stake on top of the existing SDLT charge it should be!
So what’s the issue?
From 1 April this year the rate of SDLT charged on the purchase of an additional residential property is 3% above the existing rates. So, if our couple decided not to sell both the properties but instead opted to rent, say one, out, maybe to generate some extra income, they could be potentially caught by this new legislation.
But what are the conditions which cause the charge to be paid?
The legislation is confusing but in essence, the higher rate SDLT will apply if any one of the following four conditions is met:
The chargeable consideration is £40,000 or more
The dwelling is not subject to a lease which has more than 21 years to run on the date of purchase
The purchaser owns an interest in another dwelling which has a market value of £40,000 or more and is not subject to a lease which has more than 21 years to run on the date of purchase
The dwelling being purchased is not replacing the purchaser’s only or main residence
HMRC recognise that there will be some instances where the purchase of the new main home may complete before the sale of the previous property, thus potentially giving the person two properties and a charge to the additional 3% SDLT. However, where the previous home is sold within 3 years of the purchase of the new home, it is possible to claim a repayment of the additional SDLT paid.
So, looking at our couple who both have a main residence and are buying a joint property, if they both sell their properties before the new property is purchased or as part of that purchase (i.e. in a chain completing on the same day), only the 'normal' SDLT is due. If one or both decide to keep their previous home/(s) then the additional SDLT would be due on the whole of the new purchase price. But they would still have the potential within 3 years to claim back the additional SDLT if both properties were sold.
The diagram below summaries the position:
If you are looking at purchasing a second residential property and need help understanding your SDLT exposure, feel free to speak to your contact partner or to Bridget Martin on 020 7490 7766 or email firstname.lastname@example.org.