The Three Possible Scenarios in Property Purchase
1. The buyer is a first-time buyer or someone who has already sold their previous main home and owns no other property. At the end of the purchase they will only own one property. Only the basic rate of stamp duty is payable.
2. The buyer currently owns only one property (typically as their main home). They intend to sell their current residence after they have bought a replacement. At the time of the purchase, they will own two properties and therefore the surcharge will be payable. They will, however, be entitled to a refund of the surcharge provided that their original home is sold within three calendar years of the purchase of the second property.
3. The buyer already owns at least one property and intends to keep at least one other property in addition to the one they are purchasing. At the end of the transaction they will own two or more properties. The surcharge is payable.
NB: In this context the term property refers to property in England, Wales or NI. At current time, property in Scotland or elsewhere (including the EU) is ignored for the purposes of deciding whether or not the surcharge is payable.
Property also means standard residential property, e.g. homes such as caravans, mobile homes and houseboats are all excluded.
Some Key Points Regarding the New Surcharge
Married couples and civil partners are treated as being a single unit. In other words, the surcharge is still payable even if the couple buy the two properties in different names. Similarly parents who buy property with their children while owning a home of their own will trigger the surcharge.
Having said that, couples who have officially separated are treated as individuals, even if they are not actually divorced (or had the civil partnership dissolved).
Those who inherited a share in a property up to 36 months prior to the purchase of another property, will be exempt from the surcharge provided that their share is a maximum of 50%.
What Does The New Surcharge Mean in Practice?
It remains to be seen what impact this new surcharge will have on the housing market. In simple terms only time will tell if this new surcharge will cause a reduction in the number of properties being bought as buy-to-let investments or if buy-to-let landlords will simply absorb the charges and pass them on to their tenants. For some buy-to-let landlords, it may be cost-effective to run their portfolio by means of a limited company. Some financial services providers are already adjusting their offerings in the light of this, for example by allowing mortgages to be taken out by limited companies rather than individuals. This approach, however, will depend on each individual’s situation and given the effort and costs involved in setting up a limited company, it is strongly recommended to take professional advice before embarking on this course of action.
Your property may be repossessed if you do not keep up repayments on your mortgage
