When you can reclaim stamp duty on a second property

Date: 19th February 2019

A 3% Stamp Duty Land Tax (SDLT) Land Tax surcharge has applied since the 1st April 2016 on purchases of additional residential properties such as second homes and buy-to-let properties.  In Scotland this is called the Land and buildings Transaction Tax (LBTT) Additional Dwellings Supplement (ADS).

The higher rates apply to most purchases of additional residential properties where, at the end of the day of the transaction, an individual purchaser owns two or more residential properties, and is not in the process of replacing his main residence.

The 3% additional rate will also generally apply to purchases of residential property by companies.  In the case of joint purchasers, the higher rates will not apply where, at the end of the day of the transaction, each purchaser only owns one residential property.

The issue for the conveyancing solicitor is that often a purchase completes and the sale of the residential property is delayed (due to any number of reasons – for example, the purchaser pulling out at the last minute), but the seller decides still to complete on their new property.

The additional tax can be reclaimed

In these circumstances, the 3% surcharge remains payable but there is the potential to reclaim the additional tax paid, if the delayed sale subsequently completes, or if a new purchaser is found and the property is sold.

Under the Scottish tax system, to qualify for the reclaim of LBTT ADS paid, the existing property must be sold within 18 months of completion of the purchase of the second property.  In England, Wales and Northern Ireland, to qualify for the reclaim, there is a three-year window to complete on the sale.   There is a 5-year window to submit the reclaim.

A new Welsh Land Transaction Tax (LTT) will commence on 1st April 2018.  It is expected to mirror the SDLT rules for the near future, but there are some subtle differences and we can help you with these.

SDLT, LBTT and in the future LTT will be dealt with in the majority of cases by the conveyancer or solicitor dealing with the purchase, however it is a little known fact that SDLT, LBTT and LTT is a self-assessment tax and purchasers are responsible for the accuracy of their own returns.  Where an understatement of SDLT, LBTT or LTT results from a mistake and that mistake is careless or deliberate, penalties of up to 100% of the tax understated can apply alongside other sanctions.

The additional charge does not apply to properties with a value of £40,000 or less, but this is not an allowance, because, if the property’s value is in excess of £40,000, then the additional 3% applies to the whole transaction.

The 3% charge is in addition to the stamp duty charged on each tranche of the property price.

If you are considering buying a second or subsequent property this chart may help to calculate the actual cost of the property to be purchased:-

Purchase price of property

Rate paid on tranche within each band

England, N.I. and Wales
(until 31st March 2018)
Scotland Wales
(from 1st April 2018)
Single/only Property 2nd or additional
Up to £125,000 Up to £145,000 Up to £180,000 0% 3%
£125,000 to £250,000 £145,000 to £250,000 2% 5%
£180,000 to £250,000 3.5% 6.5%
£250,000 to £925,000 £250,000 to £325,000 £250,000 to £400,000 5% 8%
£400,000 to £750,000 7.5% 10.5%
£925,000 to £1,500,000 £325,000 to £750,000 £750,000 to £1,500,000 10% 13%
Over £1,500,000 Over £750,000 Over £1,500,000 12% 15%

Top Tip

We would strongly advise all property purchasers to retain a copy of the SDLT1 or in Scotland the LBTT Return form.  These forms are usually completed and submitted by the conveyancing solicitor at the time of purchase as part of the property completion process.

As always, if you have any questions whatsoever about this matter, please do not hesitate to call your usual Oaktree contact.  Thank you!

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