The Treasury has proposed a higher stamp duty rate to be paid by companies who purchase their first residential property, however, it is unlikely that a first home would be bought through a company.

The valuable exemption proposed is for companies holding more than 15 properties.  If the portfolio is more than 15 properties then it is worth considering transferring into a company structure.  There is consideration being given as to whether this exemption should apply to privately owned properties, but as drafted it only applies to companies.

Many landlords are already setting up limited companies to reduce the impact of the reduction in mortgage interest relief, which is reduced to the basic rate of tax from April 2017.

Companies can still obtain mortgage interest relief at their marginal rate, which may be higher than the basic rate of 20 per cent, and so for those who are building up property rental portfolios rather than looking to live on the rental income in the short term, a company can still be an attractive structure.  Landlords who need to pay out dividends though should be aware that a change to the tax treatment of dividends comes into effect in April 2016, and there will now be a 7.5% basic rate income tax charge where previously this was tax-free.

In summary, it is worth considering the company ownership route if:

1. You own 15 or more properties, or
2. You intend to build up your property portfolio rather than needing the rental income

The exemptions 

There are some types of property that won’t fall under the additional SDLT charges. These are:

• Caravans and houseboats: Those who own a caravan, mobile home or houseboat currently isn’t required to pay stamp duty. This exclusion will remain from April.

• Property worth less than £40,000: The consultation document states that: “Transactions under £40,000 do not require a tax return to be filed with HMRC and are not subject to the higher rates.”

• Social landlords: “Charities and registered social landlords will continue to be excluded from the stamp duty changes.”

• Multiple purchases: “The government is proposing to exempt companies already owning 15 properties from the extra stamp duty. These owners may be corporates, funds or significant investors boosting the nation’s housing stock.”

Frequently asked questions AQ

1. What if I want to buy in my husband or wife’s name? 

The government will treat married couples and civil partners living together as one unit.  This means any homes owned by either partner will be included when SDLT is calculated on the purchase of another property.

If their spouse or civil partner already owns a residential property, an individual buying a property may be liable for higher rates.

If the spouse or civil partner then decides to sell that residential property they are allowed to claim a refund within 18 months.

The government is also proposing the same system for joint purchasers so cohabitees may not be at any advantage.  This has not yet been confirmed.

2. Purchasing a property for children to live in 

Buying a property in the name of the parent, or in joint names with the child, will still be caught.  However, there is a way to combat this by buying the home on the child’s name outright.

It is not clear at this point how a purchase through a Trust would be treated.+5

3. Buying if you own a home abroad 

The SDLT charge applies where a second property is being purchased, notwithstanding that the first property may be overseas.  Property which is owned globally will be taken into consideration when determining whether a property bought in England, Wales or Northern Ireland is, in fact, an additional property.

What this means is that even if someone is buying their first (or only property) in England, Wales or Northern Ireland, if they also own another property outside of this area, this will result in them having to pay a higher stamp duty rate.

This would apply to a foreign homeowner buying in Britain, or where their first property is in Scotland.

4. Is there scope to use the main residence exemption to avoid the extra charge?

In a nutshell, no. Whenever someone purchases a second property they will always have to pay the higher rate of stamp duty. This will still be the case if the plan is to live in the second property and rent out the old one.

If at the time of completion you decide to keep your old home, the extra stamp duty charges will need to be paid, even if you move into a new main residence.

The only point to keep in mind is that you can get a stamp duty refund when you sell your old property within 18 months (and if you remember to claim it!).

If you would like to talk to a expert about SDLT please do not hesitate to contact the: tax specialist team in Leicester

The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal advice and should not be relied upon as advice. Please see our website terms and conditions for full details of our disclaimer.  If you are interested in obtaining advice, please contact one of our solicitors who will be happy and able to advise you on your own particular circumstances.

The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal advice and should not be relied upon as advice. Please see our website terms and conditions for full details of our disclaimer. If you are interested in obtaining advice, please contact one of our lawyers who will be happy and able to advise you on your own particular circumstances.