The Chancellor announced a proposed 3% surcharge on second homes and investment properties in his 2015 Autumn Statement due to become effective from 1 April 2016.

A consultation on the proposed changes was opened on 28 December 2015 which set out the proposals and this closed on 1 February 2016. Today draft legislation and more comment on the charge has been released following consideration of the consultancy responses.

All individuals purchasing residential property in England, Wales and Northern Ireland will be within the charge if at the end of the day of the transaction, they own two or more properties and are not replacing a main residence. Foreign residences are counted for the purpose of counting how many residences are owned at the end of a day. Companies and other non-natural persons will be within the charge for all residential property acquisitions.

Properties purchased for under £40,000 will be excluded from the higher charge. SDLT was devolved in Scotland on 1 April 2015 so properties acquired in Scotland are not affected by this change. In addition, SDLT in Wales will be devolved in April 2018 so properties located in Wales are within this measure only until 31 March 2018.

The higher charge will apply for relevant properties where the purchase is completed on or after 1 April 2016. Contracts that exchanged on or before 25 November 2015 will not attract the higher charge even if completion is after 31 March 2016.

The consultation document had expressed a possibility of allowing significant property investors (eg holding more than 15 residential properties) as being outside the higher charge. The draft legislation does not, however, include relief for such owners and they are within the 3% additional charge.

A summary of specific issues are as follows:

• A leasehold interest is not within the charge if the lease was originally granted for a period of seven years or less.

• If a property is acquired by joint owners and any one of those owners is within the higher charge the higher charge will apply to all owners.

• Spouses or civil partners living together are regarded as joint purchasers when deciding if the higher charge applies. This means that a property acquired by a spouse/civil partner of a person who already owns a residential property will be within the higher charge even if it is the first property they own personally.

• Any ownership share held by a child under the age of 18 will be treated as if it were owned by a parent or any spouse or civil partner living together with one of the child’s parents.

• A life interest beneficiary or absolute beneficiary of a trust will be treated as the purchaser when deciding if the higher charge is applicable to a property purchased by the trustees. A discretionary trust without a life interest beneficiary will be liable to the higher charge.

• An inherited property will be ignored if the beneficiary’s share in that property does not exceed 50% and a new property is acquired by the beneficiary within three years of the inheritance.

• If a main residence is yet to be sold at the time a new property is acquired which is intended to be the only or main residence, the higher charge is applied for that purchase but may be reclaimed if the disposal occurs within 36 months. The 36 month period is an extension to the 18 months set out in the December 2015 consultation document.

• If a main residence has been sold and it is replaced with a new main residence within 36 months of the previous disposal, the 3% higher charge will not apply if another property is owned at that time.

Clearly the rules regarding the 3% surcharge are not necessarily straightforward or obvious so in all cases, this matter should be carefully reviewed if a new property is being acquired when another property is already owned by either the individual or their spouse/civil partner.

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