Lovers planning to pop the question on Valentine’s Day are being warned that, if their partner is a home owner, it could lead to them facing a higher tax bill if they buy a property, even one in their sole name, after they become part of a married couple.
From 1 April 2016, the Government will charge an extra three per cent stamp duty on purchases of residential property if the purchaser already owns another residential property.
The Association of Taxation Technicians (ATT) is highlighting1 that married couples and those in a civil partnership – but not cohabiting couples – will be treated as a single unit for the purposes of the new rules, which means that if one of the couple already owns a property, any property purchase by the other partner will be subject to higher rates of Stamp Duty Land Tax2 (SDLT).
The ATT, in its response to the consultation, shot an arrow across the Government’s bow by suggesting that the proposed ‘married couples are one unit’ rule risks being seen as discriminating against individuals in a marriage or civil partnership. The ATT believes it would be simpler and fairer if the rules for charging the higher rate of SDLT followed the treatment of couples for income tax which taxes them independently.
The tax experts have said that anyone worried about being hit by the new rules should consider buying the property before marriage if their loved one is already a property owner. However joint purchases after 1 April 2016 where one of the purchasers already owns a property are set to be hit by the additional levy whether or not the purchasers are married, or indeed in any kind of relationship.
Yvette Nunn, Co-Chair of ATT’s Technical Steering Group, said
“This ‘Cupid Tax’ is both unfair and flawed. The Government’s tax on marriage and civil partnerships goes against the principle of legal ownership and risks eroding the foundation of independent taxation3 if it goes ahead.”
There are a number of other aspects of this new SDLT measure that also concern the ATT, including the fact that the exemption from the charge is based on replacing a main residence rather than purchasing a main residence. This puts people who are purchasing a main residence for the first time, but already own or have an interest in another property, at a disadvantage to someone who may have sold their main residence and then buy a new one whilst still owning a buy-to-let property.
The proposals will also have a serious impact on those who find themselves in a bridging loan situation, where they have to buy their new home whilst not having yet sold their old one, maybe because a buyer backed out at the last minute, as they will have to pay the extra three per cent stamp duty on the purchase of the new home. If they fail to sell the old home within a set timescale, proposed by the Government to be just eighteen months, they will not be able to claim a refund of the extra three per cent paid.
Yvette Nunn said:
“As we have pointed out in our response, this extra charge comes at a time when house buyers are already financially stretched. The proposed change could mean that some decide to pull out of their purchase which would have a negative effect on the rest of the buyers in their housing chain. We have urged the Government to think again on this as it has the potential to stall the housing market. This would go against the policy intention of the measure which is aimed at helping first time buyers get on the property ladder. As we see it, they are the very buyers who may lose out when housing chains collapse if someone further up the chain is caught under these rules.
“Overall, we believe that the proposed design of this charge will go further and will catch more situations than was originally perceived when George Osborne first announced this measure last November. The proposals as a whole, as set out in the consultation, have too many negatives, in our view.”
Notes for editors
1. The new rules were outlined in a consultation document published by the Treasury on 28 December 2015. ATT’s response to the consultation can be viewed here. The precise terms of the new rules will not be known until publication of the 2016 Finance Bill in late March 2016.
2. You must pay Stamp Duty Land Tax (SDLT) if you buy a property or land over a certain price in England, Wales and Northern Ireland. The current SDLT threshold is £125,000 for residential properties and £150,000 for non-residential land and properties.
3. Definition of Independent taxation: http://www.oxfordreference.com/view/10.1093/oi/authority.20110810105128986