Consultation issued on higher rates of SDLT for additional residential properties

On 28 December 2015, HMRC published the consultation document regarding the proposal for the further 3% SDLT rate that will apply on the purchase of additional residential properties.  The consultation closes on 1 February 2016, with the proposal that the new rate coming into force on 1 April 2016.  Under the new proposal, the rates of SDLT on residential property will be:

Property value Basic SDLT New SDLT rate on additional properties
£0 to £125,000 0% 3% (unless less than £40,000)
£125,000 to £250,000 2% 5%
£250,000 to £925,000 5% 8%
£925,000 to £1.5m 10% 13%
Over £1.5m 12% 15%


It is proposed that this additional rate of SDLT will apply to most purchases of additional residential properties in England, Wales and Northern Ireland (Property transactions in Scotland being subject to LBTT).  The higher rate will apply to purchases completed on or after 1 April 2016 unless the exchange took place prior to 26 November 2015.

Impact on Individuals

For individuals purchasing residential properties, the higher rate will not apply to the first purchase of a residential property, irrespective as to whether that property is used as a buy-to-let or as a main residence.

Where the individual owns other residential properties, including any overseas properties, then the purchase of an additional property will attract the higher rate, unless it is the replacement of the individual’s main residence.  Where a main residence is being replaced then the higher rates should not be applied – If the taxpayer has sold their previous main residence in the previous 18 months and then acquires a new main residence, then the higher rate will not be applied on acquisition.  If the taxpayer has not sold their old main residence at the time of acquisition of the new main residence, then the higher rate will be payable on acquisition and if the taxpayer sells the old property within 18 months then it will be possible to claim a refund from the additional 3%.

The consultation sets out a number of factors that HMRC will consider in determining where the property represents an individual’s private residence.  These are very similar to those used for determining capital gains tax’s principal private residence relief.  However unlike PPR, there will be no election facility so the residence will be determined by a question of fact.

Married couples and civil partners

A couple who are married or in a civil partnership will only be entitled to one main residence between them.  If either owns a property before acquiring a main residence then the acquisition of the main residence will be subject to the higher SDLT rates.

Where a couple separate they will continue to be treated as a couple until they are separated under a court order or by a formal deed of separation. This is different to the existing capital gains tax rules which treat a couple as separate individuals in the tax year following separation and will mean that separating couples could fall within the higher SDLT charge if another residence is acquired during the separation process.

Impact on Companies

It is proposed that the additional 3% rate will applied on the first as well as subsequent acquisitions by companies, unless the proposed portfolio exemption outlined below would apply.

Joint ownership

It is proposed that if at the end of the day of the transaction, any of the joint purchasers has two or more properties and it is not replacing a main residence, then the higher rate will apply to the entre consideration of the transaction.  This will therefore bite where parents acquire a property jointly with an adult child.  Parents will need to rethink how such a property will be acquired in the future.

For SDLT purposes, partnership are also treated as joint purchasers of partnership property and therefore careful consideration will need to be made of residential property held with partnerships and by fellow partners.

Impact on Trust Arrangements

It is proposed that a beneficiary with an interest in possession or a life interest in a property owned by a trust will be treated as owning that property for the purposes of the new SDLT rates. This means that the beneficiary will have to pay the higher rate of SDLT on the acquisition of a residential property. Also the trust will be liable to the higher rate of SDLT on the acquisition of another residential property. Purchases by trustees where beneficiaries have no interest in possession over the property will be liable to the higher rates.

Multiple Residential Property Purchases

It is proposed that the existing rules for Multiple Dwellings Relief will continue to be available, for acquisitions of two or more dwellings, but with the higher rates applied to the average price of the dwelling acquired.  In additional, for the purchase of 6 or more residential properties in the same transaction, the taxpayer will be also be applied to apply the non-residential rates to the consideration.

For large scale investors the government is seeking views on whether any proposed relief should be available to all types of property investors and whether an existing property ownership or bulk purchase test of 15 properties is appropriate.  It is not clear why 15. Also the proposal is that the ‘bulk acquisition’ test is 15 property acquisitions in one transaction, which suggests that they must be on the same sale and purchase agreement not linked transactions? It is expected that draft legislation will be released on 16 March 2016 as part of the Budget but given that some of this consultation is seeking evidence it is difficult to see how the legislation will address many of the issues.

What should be done now?

Although, the proposals are only at the Consultation process, it is intended that the changes will take place from 1 April 2016.  Clients should therefore consider, where possible completing before 1 April 2016.  In addition for those property investors and their advisers adversely impacted by these changes, they should consider responding directly to the consultation.

If you would like further information on consultation, please contact the TaxDesk on 0845 4900 509 and ask for Caroline Fleet.