The additional rate applies where a new property is purchased, and at the end of the day of the purchase the buyer ends up with more than one residential property (or “major interests” in residential property).
Some of the quirks of the rules are best explained by example:
My wife owns our matrimonial home and I am thinking about buying a holiday home in Cornwall. Will I pay the extra rate of SDLT?
Yes. You and your wife are treated as one for the purposes of the rules and therefore you will pay the extra SDLT.
I used to work in France but I am now returning to the UK and I want to keep my French house as an investment. If I buy a house in the UK will the extra rate apply?
Yes. But as your French house was your main residence, if you sell it first you will avoid the extra tax. Or if you sell it within 3 years of your UK purchase you will be able to reclaim the tax.
I don’t own a house in my own name but I have an interest in possession in a trust which holds a number of residential properties. I now want to buy a house myself.
As you have an interest in possession you are treated as already owning the trust properties. So if you buy a house yourself the extra rate will apply unless a trust property was your previous main residence and the trustees dispose of it first.
We are trustees of a discretionary trust and we are planning to buy a residential property for the trust. The trust currently has no property interests.
The additional rate will apply even though the trust doesn’t currently have any residential property. The treatment of interest in possession trusts is different (see above).
The new rules will take many buyers by surprise. There are other points of detail that we have not mentioned here. If in doubt make sure you get proper advice before you exchange contracts on a purchase.
This article was written by Tim Williams.