SDLT Surcharge causing cashflow problems
Hopefully you are aware of the additional Stamp Duty Land Tax (SDLT) on second homes? Put simply, if you buy a residential property and already own, or have a share of ownership, in any other property worldwide then you have to pay an additional 3% of the purchase price in Tax.
One of the reliefs available is if you are replacing your main home. If you own the house you live in and another property that you rent out, if you then buy another property to live in, you don’t have to pay the additional 3% tax, provided you sell the existing property that you live in. If you don’t sell the property that you currently live in, or you own a property that is let and then buy your first home, you will not have the benefit of the relief and will have to pay the additional tax. Even if you buy a property worth less than £125,000, the usual starting point for SDLT, you will still have to pay the 3% surcharge.
All seems straightforward but what if you agree to sell your home and buy an new property but the sale and purchase don’t complete on the same day? If you sell your current house first and then subsequently buy a replacement home to live in then, provided it is within 3 years of the sale, you will not have to pay the additional tax. However, if you complete the purchase before the sale then you will have to pay the extra tax. When you come to sell the house you lived in you can then claim a rebate of the tax. This applies even if you complete the purchase one day before you complete the sale as the revenue calculate the tax due at the end of the day of completion. If you are buying a £300,000 house then you will have to stump up an additional £9,000 on the day that you could the purchase. The next day, when you complete the sale of your previous home you can apply for a refund of this tax but it will take some time to come through which can led to significant cashflow problems, assuming that you have a spare £9000!
SDLT is very complex and you should take advice from an accountant on your specific circumstances. If you are buying your first, second or even your 25th home give one of our experienced property lawyers a call.
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Associate & Head of Residential Property