3% Additional Stamp Duty Makes Financial Advice An Even More Critical Part Of High-End Property Investment

Since April 1st 2016, buying a £5m property cost £163,750 extra in stamp duty. We explain the new charges and how they affect the high net worth investor.

You’ve probably heard about HM Treasury’s new, enhanced rate of stamp duty land tax (SDLT). This is a policy brought into effect in 2016 with the aim of raising additional tax receipts to support the required increase in affordable housing for first-time buyers. But what does the introduction of the higher rate of stamp duty mean for you as a high net worth individual with a portfolio of additional properties?

The Changes In Brief

As of the 1st of April 2016, if you buy a property in addition to your main home, you’ll be liable for an extra 3% stamp duty. This will apply no matter how many properties you’re buying. And in a significant change to the previous state of affairs, the extra percentage is added as a surcharge to each stamp duty band rate.

Stamp duty band rates are divided into tiers based on the overall value of the property, and these increase as the value of the property increases. When you buy your very first property, you’ll only become liable for stamp duty on the tiers in excess of £125,000. Under the new regulations, when you buy a second property you’ll be charged according to its entire value.

Which Purchases Are Liable?

The new, higher rates of stamp duty are levied on all additional properties bought in England, Wales and Northern Ireland after April 1st, 2016. If you already own a property or properties you don’t live in, you’ll almost certainly be affected by the new rates when you buy another. But if you sell your portfolio of additional properties and buy another as your primary home, your new purchase will be taxed at the old rate. However, if you already own a property outside England, Wales or Northern Ireland, you may be liable for the higher rate of stamp duty when you purchase one within these countries.

HM treasury has been proactive in closing loopholes which could allow owners of additional homes to avoid the increase. So the charge is payable whether you’re investing in property as an individual or a company. You’ll feel the effects even if you’re buying the property as a primary home for children or other family members, unless you buy it solely in their name. And don’t imagine it’s easy to circumvent the new rules by purchasing in your husband, wife or civil partner’s name: if you’re living together, you’ll be treated as a single unit.

What—And Who–Is Exempt?

As per the old rules, if your additional property is a houseboat, caravan or mobile home, you’ll be exempt from stamp duty. The same applies if you buy a home worth less than £40,000. Registered social landlords and charities will avoid the additional rate, as will couples who are permanently separated but not divorced. And if you inherit a smaller than 50% share of an additional property while you’re in the process of buying your primary home, you’ll also be exempt from higher rates.

The Implications For High Net Worth Investors

Given the nature of the purchases to which the higher rate applies, and the circumstances under which it applies, it’s easy to see that high net worth individuals will be the most affected by the new regulations. The enhanced stamp duty will impact on purchases made by Britons and foreign nationals alike.

Yes, the new regulations on stamp duty complicate big-ticket property purchases, but they shouldn’t put you off entirely. With the help of a correctly structured finance package, high-end property can still yield an excellent return on your investment. All you need to do is make sure you get the best possible financial advice for your situation.