How the new SDLT rates may effect single-home owners

How the new SDLT rates may effect single-home owners

By In Blog, Commercial Conveyancing, Conveyancing On 14/04/2016

Are you planning on moving home after March 2016? Don’t let the new Stamp Duty Land Tax changes make your move more expensive than necessary. 

If you’re a single home owner, you might not have given much thought to the Government’s recently announced Buy to Let Stamp Duty rates (if you were aware of them at all). But it’s not just landlords who are set to get penalised; the tax is likely to put many unsuspecting single-home owners out of pocket, too. Whether or not you will have to pay the tax all depends on how you organise and plan your move.

What are the new rates?

From March 2016, there will be a 3% stamp duty payable on the entire purchase price on any ‘second’ homes over £40,000. This rises to 5% above £125,000, and a further 8% on anything above £250,000 (you can find out more about the new rates in our in-depth post here). Although the tax is designed to target those who own multiple properties it could also have very serious hidden implications for the ordinary homeowner, too.

Why could single home owners be subject to the tax?

Whilst the tax is really meant to target those who are buying homes to rent or sell on for profit, they may have serious financial repercussions for ‘ordinary’ home buyers simply looking to move house. Calling the tax a ‘Buy to Let’ tax is perhaps somewhat misleading. The tax does not only target private landlords but anyone who plans on owning multiple properties (regardless of what they intend to use them for). This means that anyone owning multiple properties for any length of time (even a matter of days) will be technically classed as a ‘second home owner’, regardless of intention.

So many people with no intention of owning a second home will be caught out by the tax whilst moving from one house to another, even if this is only for a matter of days or weeks. Sometimes people may buy their new home before selling current one. This could be for any number of reasons – perhaps because they have found their dream home but do not yet have a buyer for their current house, or because the new home needs building work, for example. Although the Treasury has yet to announce the exact requirements of the tax, it would appear that anyone wishing to do this after March 2016 will now be classed as a second home owner and would therefore have to pay the new tax – even if in reality they only own one home after both transactions are completed!

Whilst the tax isn’t designed to penalise owners of just one property, house-movers who buy a new property before they have sold their current dwelling will be subject to the tax.

It’s likely that ordinary homeowners will be able to get a rebate of this money at the close of the tax year, but depending on when the transaction is completed and the length of time it can take HMRC to process rebates this could take some time. The tax will be calculated from the day the transaction is completed, so there is no leniency period for those buying and selling a few days apart – if you buy even one day before you sell, the tax is unavoidable.

Having to pay 3-8% of the entire purchase price upfront would obviously present a very nasty shock, particularly if you were not aware of the changes. Even if the money is eventually refunded in the form of a rebate, this extra bill could present quite a substantial financial burden during an already expensive time (especially if the tax increase had come as a surprise).

How can I avoid becoming liable to the tax?

The only way to avoid incurring the tax is to make sure you don’t end up in a situation where you must buy before you sell. For many people this won’t be an issue as they will need the funds from their sale before they can buy a new property. If you establish your wishes with your conveyancer from the outset they will negotiate with the buyers to get a timeframe which avoids incurring the tax. Staying informed and being clear about your needs is the best defence against an unexpected bill at the end of the process!