Higher Rate Stamp Duty: When Does it Apply?

Understanding higher rate stamp duty is important for property buyers in the UK, especially those considering purchasing additional properties or those with unique ownership circumstances. This guide explores higher rate SDLT (Stamp Duty Land Tax), its applicability, and details to help you make informed decisions.

What is Higher Rate SDLT?

Higher-rate SDLT refers to an additional tax applied to certain residential property transactions in England and Northern Ireland. Specifically, it targets purchases of additional properties, such as second homes or buy-to-let investments.

Introduced to curb speculative property buying and make housing more accessible, higher-rate stamp duty imposes an extra 5% surcharge on top of standard SDLT rates.

For example, if you purchase a second home for £400,000, the higher rate SDLT will increase your total tax liability compared to buying a primary residence.

What Types of Property Do SDLT Higher Rates Apply To?

Higher rate stamp duty applies to the purchase of:

Second Homes: Any residential property that is not your main residence.
Buy-to-Let Properties: Properties purchased for rental income.
Holiday Homes: Secondary properties used for personal leisure or rental.
Multiple Purchases: Acquiring more than one property in a single transaction.

Certain types of properties, such as caravans, houseboats, and properties under £40,000, are exempt from SDLT altogether.

Do I Need to Pay a Higher Rate of SDLT?

You may need to pay a higher rate SDLT if:

You already own a property and are purchasing an additional one.
You are buying jointly with someone who owns another property.
You are purchasing through a company, trust, or other legal entity.
You are a non-UK resident acquiring residential property in England or Northern Ireland.

However, exemptions exist for specific situations. For example, if you are replacing your main residence and selling the previous one within a specified timeframe, a higher rate of SDLT might not apply.

Higher Rate SDLT for Married Couples and Civil Partnerships

Married couples and civil partners are treated as a single entity for SDLT purposes. If one partner already owns a property and the couple purchases another, the higher rate SDLT applies, even if the second property is registered under the non-owner’s name.

This rule aims to prevent couples from splitting ownership to avoid the surcharge. However, if the new property replaces their main residence, the higher rate may not apply.

Buying with Someone Else

When buying a property with another person, the higher rate stamp duty rules depend on both parties’ ownership status:

If one party already owns a property, the purchase will attract a higher rate of SDLT.
If neither party owns a property, the standard SDLT rates apply.

Joint purchases often result in additional SDLT liabilities due to shared ownership rules, so it’s important to evaluate each buyer’s circumstances.

Stamp Duty Land Tax (SDLT) on Divorce

Divorce or separation can complicate property transactions and SDLT liabilities. If one party transfers their share of a jointly owned property to the other as part of a divorce settlement, SDLT is typically not applicable. However, if a new property is purchased before the settlement is finalised, the higher rate SDLT may apply if the original property is still owned.

Exceptions to Higher Rate SDLT

Several exceptions can exempt buyers from higher rate SDLT or allow for refunds:

Replacement of Main Residence: If you sell your primary home and purchase a new one, a higher rate SDLT does not apply.
Property Value Below £40,000: No SDLT is payable on properties under this threshold.
Multiple Dwellings Relief (MDR): Purchasing multiple properties in a single transaction may qualify for MDR, reducing the overall tax.
Timing of Transactions: If you sell your old home within three years of buying a new one, you can claim a refund of the higher rate SDLT paid.

Trusts and Companies

Purchases made through trusts or companies are generally subject to a higher rate of SDLT:

Companies: Residential property purchases by companies are automatically charged a higher rate, regardless of the property’s use or the number of existing properties owned.
Trusts: If a trust acquires a property, the SDLT liability depends on whether the trust is bare (for a specific individual’s benefit) or discretionary (managed by trustees). Beneficiaries of bare trusts may still face higher rates of SDLT.

Professional advice is important when dealing with property purchases involving trusts or corporate entities.

SDLT Rates for Non-UK Residents

Non-UK residents face additional SDLT surcharges on top of higher rate stamp duty. As of April 2021, a 2% surcharge applies to residential property purchases by non-UK residents. This charge is cumulative, meaning non-resident buyers acquiring additional properties could pay up to 5% above standard SDLT rates.

For example, a non-UK resident purchasing a second home worth £500,000 would face:

3% higher rate SDLT surcharge.
2% non-resident surcharge.
Total SDLT rate increase of 5%.

Understanding Higher Rate Stamp Duty with Expert Advice from Haggards Crowther

Higher rate stamp duty affects various property transactions, especially for buyers of second homes, investors, and non-UK residents.

Whether you’re buying as an individual, with a partner, or through a trust or company, seeking expert advice ensures compliance and minimises unnecessary costs.

Get in touch with Haggards Crowther today for expert support and advice. We offer a 30-minute free consultation.

Terry Smith

Terry started life at HM Revenue and Customs before moving to Ashdens and then on to BDO and Chantrey Vellacott, the combination of which has provided Terry with a wide breadth of experience which has proved invaluable when helping a broad range of clients with their tax affairs.

Whether it involves meticulously organising a client’s tax affairs or leveraging his expertise to mitigate their tax exposure, Terry has a passion for delivering tangible results.