The Government has provided further clarification for those looking to work out if they owe the extra 3% stamp duty land tax on buying property. We try to demystify it here.

We’ve received thousands of “Do I need to pay?’ queries over the 3% stamp duty land tax (SDLT) for second homes since it was introduced in April 2016 - with the main reader sentiment being one of confusion. 

Last week, the Government’s HMRC updated its brief guidance on the higher rates and we asked SDLT expert John Shallcross of Blake Morgan to take a look.

The good news is John welcomes it as an improvement to the previous guidance. The bad news is that it still takes a bit of grappling with. 

What are the key takeaways?

The new guidance is a great improvement on the previous update of 24 March 2017, and does clear up some of the confusion. 

Here’s what you need to know…

1.  People buying a home to live in can sometimes have to pay the higher rates. If they own a holiday home or have a spouse who owns a buy-to-let property, these need to be considered. 

2.  Although there can be exceptions from the higher rates for those replacing their only or main residence, it is not enough just to be moving home. You may have to, for example, dispose (by way of gift or sale) a previous property which had been lived in as a main residence.

What counts as replacing a main residence?

Buying a new main residence isn’t always as straightforward as selling an existing home and making the new purchase on the same day. 

Timings often mean there will be an overlap or a delay, which throw up a myriad of queries as to whether the higher rates of SDLT are due. 

Although the new guidance does not give much explanation, details are available in this article or in the guidance in the HMRC Manual.

The new guidance says nothing about the ‘three-year rules’, nor the importance for some people of completing their purchase by 26 November 2018. For more on this, read the article here.

Is the purchase of a shop with a flat above it liable for the 3% SDLT surcharge?

Under the heading ‘Property’ the new guidance says not to include property if 'it is a mixture of residential and non-residential (for example, a shop with a flat above it)'. 

However, while buying mixed use property can never be subject to the higher rates, if someone already owns such a property, the surcharge can be applicable if they buy another property.

Are the higher rates of SDLT due on leasehold purchases?

Reading the Government’s guidance, those buying a leasehold flat might believe they escape the higher SDLT rates. However, this is not what the guidance means. 

The higher rates apply on purchases of ‘major interests’ - and major interests can be either freehold or leasehold.

Most confusion is likely to arise from the Government’s guidance that you will not have to pay the additional 3% SDLT if 'the lease is owned by someone else and it has more than 21 years left.'

This relates to a situation where you may, for example, be buying a share of the freehold, but someone else retains the lease on the property. This is extremely rare, as it would give you no rights to rent out or live in the property.

For the vast majority, buying a leasehold property should be viewed in the same way as buying freehold for these purposes.

A new online tool that could help  

Many people struggle to find the answers they need in HMRC guidance and the rules can be difficult to apply. John has produced this prototype online tool taking readers through the issues one by one.  

It uses Google Forms and so has limitations, but please feel free to try it and add some comments at the end when you get to “Submit Form”.   

John hopes to further develop the tool to provide short videos to explain key points, link to more examples and provide pop-ups to explain technical terms.

Please bear in mind that this is a project in progress and no responsibility is accepted to those using the tool.

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