Stamp Duty Changes – are you in the dark ?

Last month The Telegraph reported that.. “thousands of divorce settlements could be left open to appeal because the Government’s new stamp duty surcharge is leaving estranged partners unable to buy their own home following a split”.

The Telegraph further reported that “Experts said divorce lawyers were largely in the dark about the new law – meaning that the tax is not being factored into settlements”

What are the new rules ?

The Government has introduced higher rates of Stamp Duty Land Tax (SDLT) on purchases of additional residential properties. The higher rates are 3 percentage points above the current SDLT rates and will apply to purchases of additional residential property which complete on or after 1st April 2016.  The rates are charged on the portion of the value of the property that falls into each band.

Band Existing Residential SDLT rates New additional property SDLT rates
£0 – £125,000 0% 3%
£125,000 – £250,000 2% 5%
£250,000 – £925,000 5% 8%
£925,000 – £1.5 m 10% 13%
£1.5 m + 12% 15%

The higher rates will not apply if “at the end of the day of the transaction” an individual owns only one residential property (irrespective of whether they intend to use it as a main residence or whether they intend to rent it out).

If, however, at the end of the day of the transaction an individual purchaser owns two or more residential properties then whether they will pay the higher rates or not will depend on whether they are replacing their main residence.

The following are some of the examples found on the GOV.UK consultation outcome website:

Eg. Z already owns a main residence and is purchasing a property that will be used as a buy-to-let. At the end of the day of the transaction she owns two properties and has not replaced her main residence so the higher rates will apply

Eg. 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 and so the higher rates will not apply

Eg. H owns a main residence. He is purchasing a new main residence but rather than selling his previous main residence he will rent it out.  At the end of the day of the transaction H owns two properties and is not replacing a main residence (as he is not selling his previous main residence) so the higher rates will apply

The most common scenario in which purchasers are expected to pay the higher rates is where they are purchasing a buy-to-let or second home in addition to their main home.

Divorce lawyers need to be particularly careful to take account of potential additional SDLT costs where for example the Wife is keeping the family home but the Husband retaining a stake in it (perhaps where they want to provide stability for the children). If the Husband in this scenario were to go on to purchase a new property to live in then he would be subject to the extra tax on that purchase (and would only be able to claim a refund if the separation was “likely to be permanent” and the first home sold within 3 years).

Where can you find the new rules ?

Clearly the most prudent course is to highlight this potential issue at the earliest stage and ensure that expert advice is taken so that both parties are working towards a settlement that factors in any additional liability that will be incurred.