Surcharge rate of SDLT for residential dwellings

The most recent changes to SDLT involves higher rate of tax payable in certain circumstances on residential use of properties.  Please note that these regulations do not apply to properties which are classified as non residential or as mixed use (i.e. which include both residential and non residential elements).  The rules on the treatment of SDLT are complex and will vary on a case by case basis, and is beyond the scope of this note to provide an in-depth analysis of the law relating to SDLT.  There are, however, two principal regimes to note in relation to the additional payment of SDLT for residential properties.

The first regime is the 15% higher rate of tax on dwellings. This will be covered in a separate note.

The second higher residential rate of SDLT relates to the 3% surcharge on additional dwellings. The first point to note is that any purchase by a company or non natural person is automatically surcharged regardless of whether or not it relates to the 15% higher rate tax.  The 3% surcharge is, however, not payable on top of the 15% higher rate if that applies and currently 15% is the highest percentage that can be charged on a property.

All purchases of residential property should be treated as surcharged unless all of the 3 provisions below can be satisfied:

1.The purchasers are all individual persons;

2.The dwelling purchased is not an additional dwelling;

3.The purchased dwelling is not replacing the purchaser’s main residence.

The specific rules and exemptions to this are complex but if any of the provisions above cannot be shown to apply, and the purchase does not fall within any other class of exemption, 3% additional tax will be payable on the purchase price.  This is the case even where a property would ordinarily fall within a nil rate band below the minimum threshold of payment for SDLT (currently £125,000).  If a property was, for example, purchased for £100,000 but would qualify as an additional property, SDLT would therefore be payable at 3% even though no tax would be payable on it if it were not an additional dwelling.

The other main point to note is that this applies to a dwelling anywhere in the world and does not apply only to England and Wales.

The rules relating to the higher rates of SDLT are extremely complex and professional advice should be sought in all situations.

The final point to note is that if multiple dwellings are being bought in a single transaction, and one of those dwellings is subject to the additional rate, all of the dwellings will be treated as having the additional rate applied to them even though they individually would not normally attract the surcharge.  Once again there are exceptions to these rules, including where purchases are linked transactions and where an additional dwelling falls within the definition of an annex. There are also a number of reliefs which may be claimed, such as multiple dwellings relief. These options should be explored in order to minimise any tax liabilities where possible.