In his Autumn Statement and Spending Review last year, Chancellor George Osborne announced plans which will affect buyers who already own one or more residential properties looking to purchase a second home or a buy-to-let investment.
The changes are due to be implemented on 1 April and are intended to offer more support to first-time buyers looking for affordable housing solutions.
Here are the key highlights and issues to consider from the government’s consultation:
1. Larger investors
The government is considering an exemption from the Stamp Duty levy for those making significant investments in residential housing.
The initial view set out in the Autumn Statement was that an exemption would only apply to corporates and funds who have an existing residential property portfolio of at least 15 properties.
However, in its consultation the government has outlined that it may be more appropriate to target an exemption based on the bulk purchase of at least 15 residential properties. Its justification for this is that bulk purchases are more likely to provide significant sources of finance and development certainty to a project.
In addition, it proposes that where six or more residential properties are bought together, the purchaser can choose whether to apply the non-residential rates of Stamp Duty to the entire transaction value or apply residential rates of Stamp Duty with Multiple Dwellings Relief applied.
2. Tax avoidance
Concerns have been raised in the consultation about the treatment of purchases made by companies and collective investment vehicles. The government has warned that there is a potential for tax avoidance opportunities if these entities are granted exemption from the surcharge.
For example, an individual could purchase an additional property via a company to avoid the higher rates of Stamp Duty.
As a result, the government has proposed that first purchases made by companies or collective investment vehicles will be subject to the 3% surcharge to guard against tax avoidance risks.
3. Land will be exempt
As the government does not plan to change the definition of residential and non-residential property with the introduction of the Stamp Duty levy, non-residential property will never be subject to the higher rate of tax, even if it is later converted for residential purposes.
This will mean land that may subsequently be used for residential use will be excluded.
4. 18-month grace period
A maximum 18-month period between the sale of a previous main residence and purchase of a new main residence has been proposed as to determine whether the higher rates apply.
A refund mechanism is intended to be introduced for those purchasers who pay the higher rate but then go on to sell their previous residential property within 18 months of the purchase of the new main residence.
5. Exchange of contracts
The 3% levy will only apply to purchases of additional residential property which complete on or after 1 April. For contracts exchanged after 25 November 2015, the higher rates will apply if completed on or after 1 April this year.
However, if contracts were exchanged on or before 25 November 2015 but not completed until on or after 1 April, the higher rates will not apply.
6. Married couples
The government will treat married couples and civil partners living together as one unit. This treatment is in line with Capital Gains Tax private residence relief where married couples are entitled to relief on one residence between them.
7. Buying for or with children
Properties purchased by a parent already owning a house for or with their children will be subject to the higher rate of tax. Where the parent does not jointly own the property but provides money towards a deposit while also acting as guarantor on the mortgage, the 3% levy will not apply.
8. Changes to the Stamp Duty return form
The existing return form will be amended in order to comply with the new higher rates. Buyers will be required to take the ultimate responsibility for accuracy of the return and guidance will be provided by HMRC. The government is also considering how it can support this conveyancers in the process.
The final policy design will be announced at the Budget on 16 March 2016. Relevant parties have until 1 February to respond to the consultation.