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Budget 2016

Following the recent Budget announcements, how will the changes affect the property industry and individuals buying and selling properties?  See below for some useful question & answers. Visit www.gov.uk for full information.   If you have any further questions please do not hesitate to contact your local office.

"Q. What is the 3% Stamp Duty surcharge?
A. It's a 3% loading on existing Stamp Duty rates, which are set out on the table below:

Q. Who has to pay it?
A. Anyone who is buying additional residential properties, for example a holiday home or buy-to-let, within England, Wales, Northern Ireland and - under a separate announcement in the Scottish Government's Budget - in Scotland too.

The surcharge will apply even if the home you already own (or part-own) is overseas. So, if you have a ski chalet in Bulgaria and are buying your first home in the UK, you’d still be stung with the extra tax.

Q. When does it kick in?
A. The new surcharge takes effect from 1 April, 2016, but was first announced in the Chancellor’s 2015 Autumn Statement. If you want to avoid paying it, you must complete (not just exchange) on any second home purchase by midnight on 31 March, 2016 (unless you had already exchanged on or before 25 November, 2015, the date when the new tax was announced).

Q. How is the tax charged?
A. Regular Stamp Duty is, these days, charged on a tiered basis (so you only pay the higher rate on the slice above any threshold – the same as income tax). But the 3% surcharge will still effectively work as a slab tax. In other words, the 3% loading will apply to the entire purchase price of the property.

Q. How much does that translate into?
A. As an example, if you are buying a second home with a purchase price of &300,000, just the extra 3% Stamp Duty would equate to &9,000 (3% of the entire price). This is in addition to the &5,000 regular Stamp Duty bill on a home of this value, making the total payable an eye-watering &14,000.

To get an overall Stamp Duty figure on a second property, work out the regular cost first with our handy calculator. Then calculate 3% of the purchase price and add the two figures together.

Q. What if the home I am buying is my main residence?
A. If the home you are buying directly replaces your main residence, you will not be liable for the 3% surcharge, even if you own an additional home/s at the same time. This example is straight from the Government's consultation document:

"A owns both a main residence and a second home. She sells her main residence and purchases a new one. Although she has two properties at the end of the day of the transaction, she has replaced her main residence so the higher rates will not apply."

But the Treasury says that moving out of rented accommodation does NOT constitute a main residence. Your last residence will need to be disposed of (ie, sold) to escape the surcharge. Gifting a property however, DOES constitute disposing of your main residence.

Q. What if I need to buy another main residence before I can sell my last one?
A. If you move out of your main residence (Home A) but keep it and buy another main residence (Home B), you will have to pay the 3% Stamp Duty surcharge initially. However, so long as you sell Home A within 36 months of completing on the purchase of Home B, HMRC will make a full refund.

Q. What if I sell my main residence but I'm not able to buy another one straight away?
A. In some cases, (for example, if you are moving back to the UK after living abroad), you may have to sell your main residence but move into a 'stop gap' before you can buy a new one. In this case, you will offered a 'grace period' of 36 months during which time the purchase of your next main residence will not be subject to the 3% surcharge.

Q. What if I already own a property, but I'm buying with a partner who doesn’t?
A. Unfortunately even if just one of you already owns a home, when you are buying another one together, the 3% Stamp Duty surcharge will apply.

Q. Can I avoid the surcharge by setting up a limited company?
A. The government has a keen eye on preventing tax avoidance with this new levy, so you won't be able to escape the surcharge by setting up a limited company for the purpose of buying an additional home or homes. We;re currently waiting on more information from the Treasury on how this will work for existing limited companies.

Q. What if I am a major property investor?
A. It was confirmed in the 2016 March Budget that major investors in residential property will be liable for the 3% surcharge. In its initial consultation, the Government had earmarked 'bulk buyers' of 15 or more residential homes for exclusion as they were deemed to be 'contributing towards new housing supply'.

Q. Can I just omit to mention to my solicitor about the fact I already have a home?
A. HMRC has instructed the country's solicitors and property lawyers to ask buyers the question outright of whether they already own another property. If you don’t answer truthfully it’s tantamount to fraud - penalties for which could be a lot worse than a 3% Stamp Duty loading.

Q. Are there any exemptions?
A. You won’t pay the 3% Stamp Duty surcharge on second homes that cost less than &40,000 (see 6 homes on Zoopla for under that budget), or on caravans, mobile homes and houseboats.

And, while it's not an exemption, it's worth noting that if you pay Capital Gains Tax on the sale profits of an additional home, you can offset the cost of the 3% Stamp Duty surcharge against your bill.

Q. What if I inherit my property?
A. No Stamp Duty is payable on properties that are inherited, so the 3% premium will not be relevant. However, if you have inherited a property and go onto purchase a second home without selling it, you will be hit with the surcharge.

Q. Is all this set in stone?
A. The Government's consultation on the surcharge and how it will work closed on 1 February. The final policy design was announced in the Chancellor's Budget on 16 March.

COMMENTS DO NOT CONSTITUTE FINANCIAL ADVICE AND ARE PROVIDED FOR GUIDANCE ONLY. " source Zoopla