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Co-ownership And The 3% SDLT Charge (Part 1)
By Malcolm Finney, December 2016
Stamp duty land tax (SDLT) is a tax levied on the purchase consideration for the acquisition of land or buildings in the UK, and is paid by the purchaser.

The rates of SDLT for residential property vary between 2% and 10%, with a 0% rate applying to property purchases of £125,000 or less. A penal rate of 15% applies where the purchase is effected by a company and the purchase consideration is £500,000 or more.

Additional rates of SDLT 
However, with regard to purchases of additional residential properties (e.g. second homes, buy-to-let properties) in England, Wales and Northern Ireland effected on or after 1 April 2016, higher rates of SDLT are charged; in effect, an extra 3% charge (over and above the normal rates of SDLT) applies:

Threshold Existing rates New additional rates

£0 to £125,000 0% 3%
£125,001 to £250,000 2% 5% 
£250,001 to £925,000 5% 8%
£925,001 to £1.5 million 10% 13%
£1,500,001 and more 12% 15%

Example: Purchase of buy-to-let

Herbert, who owns his own home, decides to buy in addition a buy-to-let property for £300,000. As the buy-to-let will be Herbert’s second (i.e. additional) property, the SDLT charge will be [3% of £125,000 plus 5% of the next £125,000 plus 8% of the next £50,000, i.e. £14,000 in total].

Had Herbert not owned his own home (e.g. lived with his parents in their home) and bought the buy-to-let (then his only property), the SDLT charge would have been [0% of £125,000 plus 2% of the next £125,000 plus 5% of the next £50,000, i.e. £5,000].

Conditions precipitating the 3% charge
The additional 3% applies where a number of conditions are satisfied: 

(a) where an interest in a residential dwelling is purchased by an individual; 
(b) the consideration for the transaction is £40,000 or more; 
(c) the individual already has an interest in another residential dwelling with a market value of £40,000 or more; and
(d) the new purchase is not a replacement for the purchaser’s only or main residence.

These conditions need to be satisfied at the date of ‘completion’ (i.e. not ‘exchange’) of the new property purchase.

Joint purchasers
However, what happens, as is often the case, where the purchase of the additional property is by two or more purchasers (e.g. a married couple (or civil partners); two co-habitees living as husband and wife; two friends; two brothers, etc.)?

Two or more (non-married) purchasers 
Tom and Mary each own their own homes. Tom and Mary plan to get married. Prior to the marriage Mary moves in with Tom and she sells her home. They then decide to jointly (i.e. 50:50) purchase a buy-to-let property for £400,000. Mary will own an interest (i.e. 50%) in only one property (i.e. the buy to let), but Tom will own his own home and will also have an interest (i.e. 50%) in the buy-to-let. 

Is the 3% additional SDLT charge payable on the joint buy-to-let purchase?

Where two or more purchasers are involved, each purchaser is considered separately. If either (or both) satisfy the conditions (i.e. (a) to (d) above) the 3% is payable on the total purchase consideration of the buy-to-let. 

In Mary’s case, she satisfies conditions (a), (b) and (d), but does not satisfy condition (c); Mary at the time of the purchase of the buy-to-let with Tom does not have an interest in any other property. Prima facie, the 3% charge does not apply. However, Tom satisfies all four (i.e. (a) to (d)) conditions.

As one of the two purchasers (i.e. Tom) satisfies the above conditions, the 3% charge applies to the whole consideration; in which case a marginal rate of 8% applies. 

Joint purchase of new home
Bob and Betty each own their own home and, like Tom and Mary above, they plan to marry. They decide to jointly purchase a new property in which they both intend to live for £975,000. Prior to their marriage, Bob sells his home and Betty lets out her former home. 

Is the 3% additional SDLT charge payable on the new joint home purchase?

Bob does not satisfy condition (d). Bob has replaced his former only residence by a replacement residence. Prima facie, the 3% charge does not apply. However, Betty satisfies all four (i.e. (a) to (d)) conditions.

As one of the two purchasers (i.e. Betty) satisfies the above conditions, the 3% charge applies to the whole consideration; in which case a marginal rate of 13% applies. 

Practical Tip:
From an SDLT perspective consideration should be given as to whether a sole, rather than a joint, property purchase would be more tax-efficient. 

This article was first printed in Tax Insider in November 2016.

 
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