HMRC SDLT: SDLTM09845 – SDLT – higher rates for additional dwellings: Transitional rules & the Wales Act 2014
SDLT Higher Rates for Additional Dwellings: Transitional Rules & Wales Act 2014
This section of the HMRC internal manual provides guidance on the application of higher rates of Stamp Duty Land Tax (SDLT) for additional dwellings. It focuses on transitional rules and the implications of the Wales Act 2014.
- Explains higher SDLT rates for additional properties.
- Details transitional rules affecting these rates.
- Discusses the impact of the Wales Act 2014 on SDLT.
- Provides internal guidance for HMRC staff.
Read the original guidance here:
HMRC SDLT: SDLTM09845 – SDLT – higher rates for additional dwellings: Transitional rules & the Wales Act 2014
Higher Rates for Additional Dwellings: Transitional Rules and the Wales Act 2014
Overview of Higher Rates
The higher rates of Stamp Duty Land Tax (SDLT) apply to all purchases of dwellings completed on or after 1 April 2016. This means that if you buy a residential property in the UK, the higher rates may apply if it’s your second or additional dwelling.
Understanding Transitional Rules
Transitional rules are in place to protect certain buyers from these higher rates. Here’s how they work:
– The higher rates do not apply if:
– A contract was entered into and substantially fulfilled before 26 November 2015.
– A contract was entered into before 26 November 2015 and no changes were made to it after that date.
However, if there are any changes to the contract after 26 November 2015, the transitional rules won’t apply. These changes include:
– Any variation to the contract or assignment of rights after 26 November 2015.
– If a transaction occurs due to exercising an option or similar right after this date.
– If there is an assignment, sub-sale, or other transaction related to the subject of the contract which allows someone other than the original buyer to demand a conveyance.
Examples of Variations
A variation of a contract might involve changes such as:
– Changing the land being purchased.
– Changing who is part of the contract.
– Modifying the payment agreed upon.
– In the case of lease agreements, changing the term length.
It’s important to note that not every change counts as a variation. For example:
– Adjustments considered trivial, like altering colour schemes or shifting the completion date, are typically too minor to be classified as a variation.
Reservation Fees for Off-Plan Purchases
When buying a new dwelling that hasn’t been built yet, you may pay a reservation fee or an option to purchase fee. Generally, paying these fees does not count as the exchange of formal contracts between the buyer and seller.
If such a fee is paid before 25 November 2015, but contracts haven’t been exchanged, the transitional rules will not apply.
Examples Illustrating Transitional Rules
Let’s look at two examples to clarify how these rules function in practice.
Example 1:
Mr A entered into a contract with a developer on 27 October 2015 for the purchase of four flats intended for renting. He also owns a family property with his wife. On 16 January 2016, he changed the contract to include his wife as a joint purchaser for the flats.
Since Mr A changed the contract after 25 November 2015, the transitional provisions do not apply, meaning he will be subject to the higher rates on this purchase.
Example 2:
Mr B signed contracts in October 2015 for purchasing a flat that is set to be completed in January 2017. He plans to add this flat to his collection of rental properties. In May 2016, he altered the contract to include his sister, Ms L, as a joint purchaser.
Even though Mr B entered into the contract before 26 November 2015, since he modified it in May 2016, the transitional provisions do not apply. Because Mr B already owns other residential properties, he will need to pay the higher rates of SDLT upon completion of this purchase.
The Wales Act 2014
The Wales Act 2014 introduced important changes regarding SDLT applicable to property transactions in Wales.
– With this act, properties covered under section 16(2) of the Act will no longer be subject to the higher SDLT rates.
– Paragraphs 13, 14(2), and (5), along with 16(4) of Schedule 11 to the Finance Act 2018, will update Schedule 4ZA accordingly.
Even with these changes, the requirement of Condition D relevant to former main residences remains, still covering the disposal of main residences located in Wales.
Key Points to Remember
– The higher SDLT rates apply to additional dwellings purchased after 1 April 2016.
– Transitional rules can prevent higher rates if contracts were signed before 26 November 2015, provided no substantial changes were made afterwards.
– Any alterations made after 26 November 2015 can nullify the transitional provisions.
– Paying reservation or option purchase fees will not count towards a formal contract exchange before the specified date.
– Changes implemented by the Wales Act 2014 affect how the higher rates apply to property transactions in Wales.
By understanding these principles and examples, you can navigate the complexities of SDLT regarding additional dwellings more effectively. This guidance is aimed to help potential buyers, as well as property professionals, to gain a clearer insight into the key rules and legislation surrounding SDLT and its transitional provisions.
Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM09845 – SDLT – higher rates for additional dwellings: Transitional rules & the Wales Act 2014
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