There has been much press commentary regarding the extra 3% Stamp Duty Land Tax (SDLT) and the 3% Additional Dwelling Supplement (ADS) – part of the Land and Building Transaction Tax in Scotland – that applies to the purchase of a second residential property by individuals in the UK from 1 April 2016.
Home owners should be wary as this can more than triple the initial Stamp Duty costs of buying a second home in the UK.
The rules are strictly applied. For example, if a homeowner wants to move house, but is finding it difficult to sell their existing home, they may decide to complete on the purchase of their replacement home and press on with trying to complete the sale of their present home at some future date.
The problem is, HMRC or Revenue Scotland will still apply the 3% extra duty even though the intention is to replace one property with another. At the time the replacement property was purchased, the buyer owned two residential properties at the end of the day the deal was completed. As such, the replacement purchase was a second property.
Homebuyers caught in this position should seek advice and quantify the amount of the extra duty they will have to find. However, all is not lost. It is possible to claim a refund of the additional 3% paid but there are time limits. In England Wales and Northern Ireland, the replaced property must be sold within 36 months of the replacement purchase; whereas in Scotland the time limit is only 18 months.