As of 1 April, 2016 you have to fork out an extra 3% in Stamp Duty if you are buying an additional home. Find out how the new tax loading works with our Q&A.
UPDATED ON 11 JULY 2016
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 an additional residential property. This could mean a holiday home, buy-to-let or even a main residence you plan to live in (more detail on this later).
Even if you already own just a share in another property, it will count (so long the share is worth more than £40,000).
Properties anywhere in the world are considered too. So, if you own a 30% share of a £300,000 ski chalet in Bulgaria and are buying your first home in the UK, you’ll be stung with the extra tax.
The higher rate Stamp Duty applies to the purchase of property in England, Wales, Northern Ireland and – under a separate announcement in the Scottish Government's 2015 pre-election Budget – in Scotland too.
Q. When did it kick in?
A. The new surcharge took effect from 1 April, 2016, but it was first announced in the Chancellor’s 2015 Autumn Statement Spending Review. To avoid paying it, you'd have had to complete (not just exchange) on any second home purchase by midnight on 31 March, 2016. (Unless you'd already exchanged on or before 25 November, 2015, the date when the new tax was announced in the Chancellor's Spending Review).
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 still effectively works as a slab tax. In other words, the 3% loading applies 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, bringing 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 will be my main residence?
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 replacing your main residence means the last one will need to be disposed of (ie, SOLD or GIFTED). If you are moving out of rented accommodation (or, say, your parents' home) this will NOT count as disposing of your main residence as your name is not on the property deeds.
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 (increased from 18 months in the March 2016 Budget) of completing on the purchase, HMRC will make a full refund.
The refund applies, in fact, to the sale of any property that has been your only or main residence at some point during the three years leading up to the purchase (ie, you don't have to be moving directly out of one main residence and in to the new one). How long you lived in a previous main residence will not be relevant.
Q. How will the refund work?
A. You’ll need to complete one of HMRC’s repayment request forms and submit it within three months of the sale. Until an online version is available, you’ll have to print off this form and post it to HMRC’s Birmingham Stamp Office. HMRC says it aims to process all repayments within 15 working days of receiving the information requested. Payment, if successful, will then be issued by payable order. If you are not successful, HMRC will write and explain why.
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, the Government will offer a 'grace period' of 36 months (increased from 18 months in the March Budget) during which time the purchase of your next main residence will NOT be subject to the 3% surcharge.
To make it fair to people who had already sold their main residence before the Autumn Spending Review when the higher-rate tax was announced, the 36 months will start ticking from 25 November 2016 and not from the date of the sale completion.
Q. What if I already own a property, but I'm buying with someone who doesn’t?
A. Unfortunately even if just one of you already owns a home (whether you are living in it or not), when you go to buy another one together, the 3% Stamp Duty surcharge will apply.
However, so long as you are NOT married, you can get around this by putting the new home in the other person's name (ie, the one who does not already own). HMRC has now confirmed to us that this will NOT be regarded as tax avoidance.
One problem with putting a new home in just one person's name is satisfying the lender's affordability criteria. But Ray Boulger, senior technical director at mortgage broker John Charcol, said that some banks including Metro Bank and The Woowich allow two names on the mortgage agreement but just one name on the property deeds.
Q. What happens if I've split from my partner but my name's still on the deeds of our home?
A. If you are separated or getting divorced and want to buy a new home to live in but your name is still on the deeds of your previous home (which is NOT being sold), this will constitute buying an additional property which means the 3% surcharge will initially apply.
However, if you go onto sell your share of the home back to your former partner (or sell the home entirely) within 36 months of completing, HMRC will provide a full refund. See above for how this refund should be carried out.
Q. I'm separated but still legally married. Will I be still be linked for tax purposes?
A. The Government confirmed that married couples who are living separately in circumstances that are likely to become permanent will NOT be treated as one unit for the purposes of the 3% surcharge. In other words, if you are buying a home that only incurs the 3% surcharge on the basis of your legal spouse's situation, you won't have to pay it.
Q. I have a second home but want to buy more shares in the one I live in. Will I be affected?
A. Purchasing additional interests in your existing home may be subject to the higher rates if you own other properties on the date of the purchase. Similarly, transferring an interest in a property to your spouse (perhaps to put them on the mortgage agreement) can result in the charge. Again, the higher rates will only apply where additional properties are owned at the time of the transaction.
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 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.
Q. What if I already have a limited company?
A. The surcharge will still apply when buying additional homes through an existing limited company.
Q. What if the home I want to buy has a 'granny annex'?
A. The 3% surcharge was initially going to be applied to any annex or additional property purchased alongside a main residence if it had a value of more than £40,000 and could be bought by a third party and used as an independent dwelling.
However, due to what it described as a 'technical unfairness', the Government made an amendment to the Finance Bill to reverse this. Now, so long as the annex is bought alongside the main residence, it will NOT be subject to the higher rates Stamp Duty. (An annex must be within the grounds of the main home and worth no more than a third of the total transaction value.)
The Treasury explained: "Under the new rules, if you buy a main residence (either your first property or a replacement for a previous main residence) worth £250,000 and an annex capable of separate sale worth £50,000 in a single transaction, Stamp Duty at the standard rates will be charged on the total value of £300,000.
Anyone who may have already paid the extra surcharge under these circumstances since 1 April, 2016, will have it refunded.
Q. What if I am a major property investor?
A. It was confirmed in the 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'.)
If you are purchasing at least 6 dwellings however, you can choose whether to pay Stamp Duty at non-residential rates or claim multiple dwellings relief. If you choose to claim multiple dwellings relief, the higher rates will apply – the minimum rate payable being 3% for purchases up to £125,000.
Q. What if I inherit my property?
No Stamp Duty is payable on properties that are inherited, so the 3% premium will not be relevant. That said, if you have inherited a property and go onto purchase an additional home without selling it, you will be hit with the surcharge.
The March 2016 Budget did hold some reprieve on inherited properties, however. The Government confirmed that a small share (50% or less) in a single property which had been inherited within 36 months prior to buying another home (which would otherwise attract the 3% surcharge) will NOT be considered as an additional property.
Q. Are there any exemptions?
A. You won’t pay the 3% Stamp Duty surcharge on additional homes that cost less than £40,000 (see 6 homes on Zoopla for under that budget), or on caravans, mobile homes and houseboats.
The purchase of a non-residential properties (such as offices or warehouses) will not attract the higher rate tax. Neither will they cause a purchase of a dwelling to be liable at the higher rates.
The purchase of a mixed-use property (a flat above a shop for example) will not attract the higher rate tax. But if you already own a mixed-use property and want to buy an additional property, it will be considered for the higher rates.
Social landlords and charities won't be liable for the 3% loading.
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. Do plots of land count?
A. Just like regular Stamp Duty, the 3% loading will only apply to purchases of residential property. A plot of land (even if it will subsequently be used for a home) is not counted as residential, so the surcharge will never apply.
Similarly, if you already own a plot of land and are buying an additional property, it will not be considered for purposes of the higher tax.
Q. What about timeshare homes?
A. An overseas timeshare home will only be considered for the purposes of the higher rate Stamp Duty if it is a dwelling AND you have a share in ownership which is equivalent to either a freehold or a lease with a term of more than seven years. However, as many timeshare deals are contractual agreements to occupy a property that is owned by another person, this will not be relevant.
Q. What about other homes specifically designed for holiday use?
A. Holiday homes – even if they are furnished holiday lets or they come with restricted use during the year – will be treated the same way as any other additional property purchases.
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. Is all this set in stone?
Yes. The final policy design was announced in the Chancellor's Budget on 16 March and it kicked in as planned on 1 April 2016.
Q. What's Zoopla's view?
The Chancellor’s decision to go ahead with plans to introduce a further 3% increase in Stamp Duty on buy-to-let properties and second homes, is the latest in a series of short-sighted policies aimed at the property market.
Zoopla's Lawrence Hall said: “The Stamp Duty on buy-to-let properties will ultimately make renting more expensive – which in turn eats into people's ability to save towards a deposit. In an attempt to reduce demand by some buyers, it ignores the fact that the private rental sector provides is an essential service for millions of adults who are happy to rent, especially in their 20s and 30s.”
Q. I need help working out whether the higher rate Stamp Duty is due. What should I do?
Telephone: HMRC Stamp Duty helpline on 0300 200 3510 (lines open 8.30am to 5pm).
Write to: HM Revenue and Customs – Birmingham Stamp Office, 9th Floor, City Centre House, 30 Union Street, Birmingham, B2 4AR. (HMRC has a 20 working day lead time for replies.)
Tweet: @HMRCCustomers with your query (account is serviced bewteen 8am and 6pm). Be sure not to disclose any personal details on social media.
Post a comment on Zoopla: Or join the discussion comments below and we'll do our best to help.
Do some research: This is the Government's initial consultation and this is its summary of final responses. This is Government's final guidance notes document on the tax and, if you really want to get into the nitty-gritty, have a look at these explanatory notes of the latest Finance Bill. (A quick way to find what you are looking for is to press Cntrl/F on your keyboard and search for a key term.)
- Find out more with our buy-to-let guide
COMMENTS DO NOT CONSTITUTE FINANCIAL OR LEGAL ADVICE AND ARE PROVIDED FOR GUIDANCE ONLY.