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HMRC internal manual

Stamp Duty Land Tax Manual

SDLT - higher rates for additional dwellings: Transitional rules & the Wales Act 2014

Where applicable, the higher rates will apply to all purchases of dwellings that complete on or after 1 April 2016.

Transitional rules provide that the higher rates will not apply where a contract has been:

  • entered into and substantially performed before 26 November 2015, or
  • entered into before 26 November 2015 and not amended after that date

The transitional rules will not apply where contracts were entered into before 26 November 2015 if:

  • there is any variation of the contract or assignment of rights under the contract on or after 26 November 2015;
  • the transaction is effected in consequence of the exercise on or after 26 November 2015 of any option, right of pre-emption or similar right;
  • on or after 26 November 2015 there is an assignment, sub-sale or other transaction relating to the whole or part of the subject-matter of the contract as a result of which a person other than the purchaser under the contract becomes entitled to call for a conveyance to him by virtue of FA16 s128(7)

A variation of a contract would include a change to:

  • the land being purchased,
  • the parties to the contract, or to the contractual consideration or
  • in an agreement for a lease, to the term length

However, some changes, for example, to prescribed colour schemes or to the contractual completion date, may be too insignificant to amount to a variation.

Reservation fees for off-plan purchases

Where the purchaser pays either a reservation fee or an option to purchase fee in relation to their purchase of a dwelling, for example, where they are buying a dwelling on a new development that has not yet been built or completed, this would not generally amount to the exchange of formal contacts between the buyer and seller. The transitional rules will not apply if such a fee were paid on or before 25 November 2015, but contracts had not been exchanged.

Example

Mr A exchanged contracts with a developer on 27 October 2015 on the purchase of 4 flats which he intends to rent out. He also owns a property jointly with his wife which is the family home. On 16 January 2016 Mr A varied the contract to add his wife as a joint purchaser of the 4 flats. Mr A will not be able to benefit from the transitional provisions as the contract was varied after 25 November 2015.

Example

Mr B exchanged contracts in October 2015 to purchase a flat which is due for completion in January 2017. Mr B owns a number of buy-to-let properties and intends to add this one to his portfolio. In May 2016 the contract was varied to add his sister Ms L as a joint purchaser of the flat.

Transitional provisions provide that where a contract was entered into before 26 November 2015, but is not completed until on or after 1 April 2016, the higher rates do not apply provided the contract is not varied after that date. As the contract was varied in May 2016 to add MS L, the transitional provisions will not apply and, as Mr B owns other residential property, the higher rates will be due on completion of the purchase.

Wales

The advent of the Wales Act 2014 means that transactions in property covered by section 16(2) of that Act will cease to be subject to the higher rates of SDLT. Schedule 4ZA will be amended by virtue of paragraphs 13, 14(2) and (5) and 16(4) of Schedule 11 to the Finance Act 2018 to recognise this.

Condition D’s requirement regarding a former main residence will still include disposal of main residences situated in Wales [Paras 14(3) and 16(4) of Schedule 11 to the Finance Act 2018].

 

 

 

`Para` references are to paragraphs in Schedule 4ZA of the Finance Act 2003.