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This publication is available at https://www.gov.uk/government/publications/changes-to-the-higher-rates-of-stamp-duty-land-tax-for-additional-dwellings/sdlt-higher-rates-for-additional-dwellings-minor-amendments
Who is likely to be affected
Individuals liable to higher rates of Stamp Duty for additional dwellings by virtue of buying a new home before selling their old home.
Persons liable to the higher rates of Stamp Duty Land Tax (SDLT) by virtue of owning, disposing of or purchasing residential property owned by more than one person.
This measure will apply solely to purchasers of property in England and Northern Ireland.
General description of the measure
The measure will extend the time allowed to claim back higher rates for additional dwellings where an individual sells their old home within 3 years of buying their new one.
The measure also clarifies the meaning of ‘major interest’ in land for the general purpose of higher rates for additional dwellings.
The measure will ensure that the higher rates for additional dwellings rules are easier to understand and more transparent.
The measure will give purchasers of residential property more time within which to obtain a refund of higher rates for additional dwellings paid.
The measure will also provide more certainty for purchasers of residential property by making it clear, that for higher rates for additional dwellings, a ‘major interest’ includes an ‘undivided share in land’.
Background to the measure
Higher rates for additional dwellings were introduced in April 2016 as schedule 4ZA to the Finance Act 2003.
As a rule, higher rates for additional dwellings require individuals who buy residential property while already owning such property to pay SDLT at rates 3 percentage points above the standard rates.
An exception to this rule arises when someone sells an old home and buys a new home. Higher rates for additional dwellings won’t be chargeable if the old home is sold before the new home is bought or if the old home is sold within 3years of buying the new home.
In the latter case, higher rates for additional dwellings must be paid upfront and can be claimed back so long as certain conditions are met.
Both changes will take effect from 29 October 2018. The time limit changes will apply where the effective date of sale of the old home is on or after that date.
Time limit for an amended return
Someone selling their old home after they buy their new home must pay upfront.
By virtue of paragraph 8 of schedule 4ZA a purchaser can reclaim the higher rates for additional dwellings provided they sell their old home within 3 years of buying their new home.
By virtue of paragraph 8(3) (a) of schedule 4ZA a successful reclaim must be made by the later of:
- 3 months from selling the old home
- a year from the filing date for the SDLT return for the new home.
In practice this means that anyone who fails to sell their old home within 12 months of the filing date of the SDLT return for their new home must rely on paragraph 8(3) (a) of schedule 4ZA and reclaim their higher rates for additional dwellings within 3 months of the sale of their old home.
The design of higher rates for additional dwellings broadly means that tax is charged when someone buys and already owns a ‘major interest’ in a dwelling.
The term ‘major interest’ is used to ensure that the higher rates for additional dwellings apply to only meaningful purchases of residential property and does not apply to ‘minor interests’, for example a right of way or a right to light.
Some external stakeholders have suggested that it is unclear whether the legal definition of ‘major interest’ includes an ‘undivided share in land’ and, consequently, whether transfers involving an ‘undivided share in land’ are within the scope of the higher rates for additional dwellings.
Paragraph 8(3) (a) of schedule 4ZA will be amended so that a successful reclaim must be made by the later of:
- 12 months from selling the old home
- a year from the filing date for the SDLT return for the new home.
While HMRC’s view is that the higher rates for additional dwellings legislation as it stands enables us to tax all purchases of undivided shares in land, paragraph 2 of the main schedule will be amended to put the position beyond doubt, and make clearer that a major interest in a dwelling includes an undivided share in a dwelling for the purpose of the higher rates for additional dwellings.
Summary of impacts
Exchequer impact (£m)
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This measure is expected to have a negligible impact on the Exchequer.
This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families
This measure is expected to have a positive impact on individuals as it extends the period from 3 months to one year to reclaim higher rates for additional dwellings from the day individuals sell their old home.
This proposal also clarifies higher rates for additional dwellings rules to make it clear that a ‘major interest’ includes an undivided share in land.
One-off costs include familiarisation with the new rules. It is not expected that there will be any ongoing costs. The measure is not expected to impact on family formation, stability or breakdown.
The time limit extension aspect of this measure is likely to have a positive impact on groups with protected characteristics, particularly the elderly and vulnerable customers who for good reasons, such as serious illness, have been unable to reclaim higher rates for additional dwellings within the previous time frame.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on approximately 4,000 conveyancers and property professionals. One-off costs include familiarisation with the new rules. There are no expected ongoing costs. There is no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
HMRC will not incur any costs in implementing these changes.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected groups.
If you have any questions about this change, please contact Neil Zammit by email: email@example.com.