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Beware the second residential property UK anomaly


Posted on: September 4th, 2020 by Leticia | | Categories: Uncategorised

Beware the second residential property UK anomaly


Depending upon which part of the UK the property is situated you will pay either Stamp Duty Land Tax (SDLT) in England and Northern Ireland (NI), Land and Buildings Transaction Tax (LBTT) in Scotland or Land Transaction Tax (LTT) in Wales upon purchase.

On top of that, if you are acquiring a residential property for investment purposes or as a holiday home or even if you are going to occupy it as your new main residence but not dispose of your old home, you can incur a further additional land tax liability.

In the case of England and Northern Ireland that is known as the SDLT Surcharge at 3%. In Wales it is the LTT Higher Rate charge also at 3%. Whilst in Scotland it is called the LBTT Additional Dwellings Supplement (ADS) at a rate of 4%. In all three cases this extra charge can be calculated on the full amount of the purchase price!!

So undoubtedly it is a case of buyer beware, especially if you are acquiring a residential property in a different part of the UK to where you reside. You may not be up to speed with not only the subtle differences in the land taxes rates and bands, but also how the tax rules, in this perspective, are applied.

There can be quite significant anomalies in the amount of land taxes you could end up paying, particularly as regards property purchases in Scotland as opposed to the rest of the UK. This has been further exacerbated as a result of the differing ways each Government in the UK has tried to stimulate the property market due to the Covid-19 pandemic.

For example:

  • Tom and Mary live together as common law husband and wife.
  • Their main residence is in Mary’s name.
  • They are contemplating buying a holiday home now for £400,000.

Depending upon which part of the UK the property is situated the couple may incur the following land taxes:

Wales LTT and the 3% Higher Rate charge = £21,950

England and NI SDLT and the 3% Surcharge = £12,000

Scotland LBTT and the 4% ADS = £27,250

If Tom only was to purchase the property the land taxes would be the same in Scotland (£27,250) but in the rest of the UK it would be:

Wales LTT only = £7,500

England and NI SDLT only = Nil

These variation in the amount of Land Taxes which could be paid will change again once the Covid-19 concessions come to an end on 31st March 2021.

Likewise, if the £400,000 property acquired by Tom and Mary was deemed to be of mixed use, part residential, part commercial (e.g. a flat and a shop or a house with woodlands attached) and the residential element was worth say £250,000, then the land taxes as regards each part of the UK would be:

Wales LTT (non-residential rate) = £8,500

England and NI (non-residential rate) = £9,500

Scotland LBTT (non-residential rate) and ADS on the value of the flat = £18,500

Before purchasing this ‘second’ property it is wise to review what the land tax might be and to see if there is any legal means of mitigating that liability. We, of course, would be happy to carry out this review.

Top tips:

It is possible, in some cases, to reclaim the additional 3%/4% land taxes you have suffered, but you must do so in a timely manner. We offer, through our tax specialists, a ‘no win no fee’ Land Taxes Reclaim service. As part of that same offering, we can also review past land/property transaction purchases (previous 12 months), commercial or residential, to see if there are any taxes which can be refunded to you, as often reliefs and exemptions are missed when carrying out the calculation.

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