Investors failing to spot tax surcharge on property purchases

Landlords, property developers and investors are still unaware of a 3% tax that most buyers of additional residential properties now have to pay, according to a leading solicitor.

Jasper Dawson of Kirwans
Jasper Dawson of Kirwans


Jasper Dawson from North West law firm Kirwans is seeing an increasing number of cases whereby purchasers are discovering at the last minute that their returns could be far less than expected, thanks to the additional stamp duty land tax surcharge (SDLT).

Those particularly affected are investors buying properties with a view to changing their use from residential to commercial, buy-to-let landlords, and small-scale property developers whose already modest returns are hugely affected by the 3% tax.

The surcharge was introduced earlier this year to raise funds for communities where the impact of second homes is particularly acute, and to help towards doubling the government’s affordable housing budget.

The charge means a rise of 3% in all residential SDLT bands, so where, for example, the previous residential SDLT rate was 2% for the £125-£250 band, any additional properties purchased will now be subject to a 5% tax instead. The same percentage also applies to other bands.

Jasper said: “Since the 3% stamp duty was introduced in April, we have dealt with a number of clients who have discovered that the residential property they were planning to buy, perhaps to turn into offices or to regenerate and re-sell, is subject to this tax.

“Often, these purchasers have been unaware right up until the last minute that this tax affects them, as many assume it only affects those buying second homes for personal use. The range of properties that this charge covers is vast; even off-plan purchases can fall into this bracket.”

There are some circumstances in which this charge does not apply, such as in the cases of non-residential or mixed use properties such as a shop with a flat above, or property transactions under £40,000.

But, according to Jasper, most buyers are subject to the additional cost, but many don’t realise until the point at which they’re about to exchange contracts, and are forced to seek urgent legal advice to find out if there is a way that they can legally avoid paying the tax.

“Fortunately, there are often ways that we can help people to continue with their purchase and still make a healthy return,” said Jasper, “but the earlier in the process that people are made aware of the potential charge, the better.

“Anyone who fears that they may be subject to this tax should seek legal advice as soon as possible.”

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