As so often with something that sounds simple, the proposed new rules are staggeringly complex with the proposals run to 31 pages. Confirmation of the rules will be announced in the Budget on 16th March (only two weeks before the rules come into effect), however, as it stands today, the new rate applies to purchases where completion (not exchange) takes place on or after 1st April.
Following the abolition of the 'slab' system, the new rates will apply to the relevant value band, so that a property costing £250,000, will be taxed at 3% on the amount paid up to £125,000 and 5% on the balance. The rates apply only to properties in England, Wales and Northern Ireland, not Scotland, but properties held in Scotland and elsewhere will count in determining whether or not several properties are owned for SDLT purposes. Properties costing up to £40,000, caravans, mobile homes and house boats are all excluded. The intention is not to charge the additional rate on replacement of a main residence; so if you own your home and another property, then sell the home and replace it, additional SDLT will not be payable provided, no more than 18 months elapses between the sale and purchase. If the new home is bought before the old home has been sold, the additional SDLT will be payable but can be claimed back on sale of the old home within 18 months.
As with Capital Gains Tax (CGT), a married couple or civil partners can only have one main residence for these rules while they are living together, and will not be treated as separated for these rules, unless there has been a Court Order or Deed of Separation, so an informal separation would be insufficient. Unmarried couples will be treated separately.
What counts as a main residence? Apparently, this will be treated as a question of fact. It will be possible, therefore, to have two properties, both of which are used for residential purposes, one of which you have elected as the main residence for CGT, but the other one being regarded as the main residence for SDLT purposes.
In difficult cases, HMRC may make extensive enquiries as to the circumstances, including where the owners spend their time, where their children go to school, where possessions are kept and which is the correspondence address. Therefore, it may be necessary to keep good records where there are two properties, both of which are used as homes and it is not obvious which is the main one.
The new rules will affect joint owners if any one of them has another property. If a couple owns their home and buys a property jointly with their children, the whole value purchased will be subject to the additional rate on the purchase. If the parents merely assist the children with a loan or guarantee and do not own a share of the equity, the additional rate should not apply. Where a property is held in trust, the additional rate may apply.
Any impending purchases of second homes should be completed before 1st April, wherever possible.
If a beneficiary of the trust has a right to occupy it, this is treated as ownership by the beneficiary. So if the trust or the beneficiary acquire a second property, that property will be liable to the higher rate (whether or not the beneficiary uses the trust property as his residence).
Where none of the beneficiaries have a right to occupy a trust property, then the trustees will be subject to the higher rate even though the trust owns only one property. The trust property is then ignored in looking at whether the beneficiaries have one property or more. Purchases by a partnership means each partner is a joint purchaser of the property so the additional rate may apply; and purchases by companies of a residential property will be subject to the higher rates even for the first purchase. There are however some exemptions for large scale corporate or fund purchases.
It is important to note that the points made above are based on a consultation document only, so the proposals may change. Clearly, however, any impending purchases of second properties should be completed before 1st April wherever possible.
Patricia is co-head of the Wealth Planning department in Europe for Withers Worldwide. She focuses on tax, trust and estate planning for both UK and non-UK resident and domiciled individuals and their families and has significant experience in advising family businesses and landed estates on succession and capital tax issues.
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JM Finn & Co is not able to give individual tax advice. Clients who wish to explore the points that this article refers to should seek advice from a tax specialist in relation to their own personal circumstances.