In last year's Autumn statement,
the government unveiled its plans to increase the rates of stamp
duty land tax (SDLT) charged on purchases of "additional
residential properties" e.g. second homes or buy to let
properties. These changes came into effect on 1 April 2016, and
apply to completions taking place on or after this date.
In this article we consider both the
substance of the new rules and their application to inherited
property and trust property.
As you will be aware, SDLT is paid
on the purchase of an interest in land. The SDLT payable is
determined by reference to the purchase price of the house
according to a banding system (similar to income tax) with SDLT
being calculated on the portion of the property value which falls
within each band.
The New Rates
From 1 April 2016, where an
individual has a "major interest in a dwelling" (i.e.
they already own residential property) and they then purchase
additional property, the rate of SDLT charged on the new purchase
will be 3 percentage points above the existing residential rates.
These higher SDLT rates are illustrated in the table below.
Existing Residential SDLT
New Additional SDLT
£0 – £125,000
(except for properties where the
purchase price is under £40,000)
So, for example, the SDLT due on a
second home purchased for £250,000 would be £10,000 (3%
on the first £125,000 and 5% on the next £125,000).
Some important points to note:
Transactions under £40,000 do not require a tax return to
be filed with HMRC and are not subject to the higher rates.
The higher rates do not apply where the property being
purchased is replacing the purchaser's only or main
The rules treat married couples and civil partners as a single
The rules apply even if the other property in which you have an
interest is situated abroad.
The higher rates do not apply to purchases of caravans, mobile
homes or houseboats.
Inheriting a Property
SDLT only applies on the purchase of
an additional property, and not upon inheriting one. However, the
higher rates would come into play in the inverse situation where an
individual has inherited a property and later buys an additional
Happily, there is an exception
(albeit a limited one) which provides that in the three year period
following the date of inheritance, if an individual's
beneficial share in the inherited property does not exceed 50%,
then he is not treated as having a major interest in the inherited
dwelling (a pre-requisite for the higher SDLT rates to apply). The
date of inheritance will not be the date of death, but rather the
date on which the interest is transferred to the individual.
So, by way of example, assume that
three sisters jointly inherit a property worth £300,000 on
their mother's death. One year after the date of inheritance,
if one sister was to buy an additional property worth
£200,000, the higher SDLT rates would not apply because her
1/3 share in the inherited property is under the 50% threshold and
the purchase has occurred within the three year time frame.
As such, this exception gives
beneficiaries who inherit an interest in a property of 50% or less
three years of breathing space in which to dispose of the inherited
property, before the inherited property affects their SDLT
The applicability of the higher SDLT
rates to beneficiaries of trusts is dependent on the type of trust
in which the property is held.
The following beneficiaries are
treated as owning a major interest in a dwelling held by the trust,
or as the buyer or seller where a trustee buys or sells a major
interest in a dwelling:
- The life tenant of a life
interest trust (being entitled to occupy the dwelling concerned for
life and/or being entitled to income earned in respect of the
- The beneficiary of a bare
Beneficiaries with interests in
remainder (interests which arise on the death of a life tenant) or
interests under a discretionary trust are considered too remote and
are not treated as owning the trust property or as the buyer/seller
if the trustee conducts such a property transaction.
Finally, it is important to note
that all purchases of property by a trustee of a discretionary
trust (including the first purchase) are treated in the same way as
a purchase by a company i.e. automatically being subject to the
higher rates of SDLT. In other words, the discretionary trust
itself will bear the higher rates of SDLT, rather than the
beneficiaries as is the case for life interest trusts and bare
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