A hike in Stamp Duty Land Tax (SDLT) is due to take a bigger bite out of individuals and families purchasing properties on or after 1 April 2016.

Whilst the reforms are yet to be finalised, the Treasury has published a consultation paper which sheds more light on the changes.

From April, buy-to-let landlords and those purchasing a second home will face an additional 3 per cent SDLT charge.

With property demand outstripping supply, it’s hoped that the reforms will free up much-needed housing and prevent first-time buyers from being locked out of the housing market due to the hike in prices.

Who will be affected?

As we delve deeper into the changes, few realise how complex property transactions are about to become. It isn’t just landlords that risk facing additional charges on properties; parents buying homes for their children or couples purchasing a home together where one is already a homeowner also fall within the criteria.

How much will I pay?

SDLT applies to all land transactions in England, Wales and Northern Ireland. Anyone buying a second home or buy-to-let property for £200,000 before April will pay two per cent of the value above £125,000.

Yet under the new reforms, landlords will pay three per cent on the first £125,000 and 5 per cent on the remainder, giving a total bill of £7,500 – five times as much as previously required.

The changes also apply to homes in Scotland that incur Land and Buildings Transaction Tax (LBTT). Properties bought for up to £145,000 don’t attract any tax in Scotland, whilst a two per cent rate incurs for purchases between £145,000 and £250,000. Therefore a property worth £200,000 would face £1,100 of LBTT, yet the same home under the new reforms would incur a three per cent surcharge, resulting in a £7,100 payment.

Band Existing SDLT Rate Proposed SDLT Rate from April 2016
£0 – £125,000 0% 3%
£125,001 – £250,000 2% 5%
£250,001 – £925,000 5% 8%
£925,001 – £1.5m 10% 13%
£1.5m+ 12% 15%
Band Existing LBTT Rate Proposed LBTT Rate from April 2016
£0 – £145,000 0% 3%
£145,001 – £250,000 2% 5%
£250,001 – £325,000 5% 8%
£325,001 – £750,000 10% 13%
£750,000+ 12% 15%

There are however some exemptions to the rule.

For example, the higher rate will not apply to purchases on or after 1 April 2016 when contracts were exchanged before 25 November 2015. This transition period also applies in Scotland where the missives of the transaction concluded before 16 December 2015.

There will also be an exemption when the purchaser has sold their main residence but hasn’t completed on the sale before the new property’s completion. In such instances, the consultation paper proposes that a refund be available as long as the gap between both transactions is less than 18 months.

In addition, any transactions below £40,000 will be exempt from the changes.

If you’re thinking of purchasing a new property this year and want more information on how the changes may affect you, then contact your local Champion office.