Higher residential rates of LTT: charges and when it applies
We’ve seen increasing interest in understanding how and when higher residential rates apply to LTT. When they do apply, an additional percentage of the purchase price is part of the tax. The additional percentage was effectively an additional 3% on the main residential rates. On 27 July 2020, the main rates starting threshold was temporarily increased to £250,000 until 31 March 2021. However, this change does not apply to higher residential rates transactions. This has effectively increased the additional rate to between 3% and 4%, depending on the value of the property.
There are several reasons why the higher rates of tax applies depending on whether the buyer is an individual(s) or a company. The 3 main reasons are:
1. Not a main residence
Higher rates applies to all individuals who buy property that is not to be their main residence, including:
- residential property that is not used by the owner as their main residence - this might include, for example, a residence used for weekends, for holidays, on a seasonal basis or during the working week to facilitate access to a place of work
- homes bought for the purpose of renting to other people for short and long-term use - this might include residential letting or holiday letting, with the latter possibly combined with occasional use by the owner as well
- homes acquired for relatives; for example, elderly dependants, children or students
- homes bought to be developed or renovated for onward resale
Higher rates applies to an individual buying a property as a new main residence, where they have not sold their previous residence at the time of purchase. However, if the taxpayer sells their former main residence within 3 years, the individual is eligible for a refund of the higher rates element of the tax. In these cases, the transaction is changed to main rates residential at the point the refund is claimed.
Higher rates applies to any company or organisation purchasing residential property for any purpose. For example, companies buying property for letting purposes, or for redevelopment.
It’s important to note that if certain conditions are met, a tax relief applies to some of the company cases which may fully or partially cover their liability when purchasing residential property. Examples of relieved transactions in this context include:
- movement of property between different parts of the same group of companies
- purchases by social housing providers
- companies providing certain alternative finance mortgages
- part exchange purchases by housebuilders and in other circumstances
These transactions still form part of the higher rates transaction counts.
We publish different statistics for higher rates transactions, including the total revenue raised and the number of refunds made each month. At a local area level, we publish the annual percentage of residential transactions for which the higher rates applies.