Stamp Duty Land Tax (SDLT) is a tax that we have all heard of and is an additional cost of purchasing property.
However, with the introduction of the additional 3% for purchases of additional dwellings, the 2% additional surcharge for non-resident purchasers and a number of tribunal cases, SDLT has become a headline tax and one that has a number of opportunities for the well advised and pitfalls for the unaware.
Mixed use property
Many know that residential and commercial properties attract different rates of SDLT. In fact, the 'non-residential' rates are lower. SDLT is calculated on the entirety of a mixed-use transaction at commercial rates allowing for lower SDLT liabilities.
Mr and Mrs Brown are looking to purchase a countryside property with stables which have been used to run an active livery business for £1.5m. SDLT on this residential purchase has been calculated at £91,250.
On review the stables would qualify as non-residential property, as they are being used for a commercial purpose. The purchased property therefore consists of both residential and non-residential elements (this is a mixed-use property), and the 'non-residential' rates apply to the total consideration, saving £26,750.
Multiple dwellings relief
Multiple dwellings relief is available where a transaction consists of more than one dwelling. This can be the purchase of a block of flats, or a purchase of house with a self-contained annexe.
The relief allows the rate of SDLT to be charged based on the average value of each dwelling rather than the total consideration of the transaction. This can lead to savings, due to utilising the lower rate bands for each dwelling.
There have been a lot of tax cases in relation to this relief, most of which HMRC has won, care should therefore be taken to ensure that there are multiple dwellings. In particular, that each dwelling is capable of being used as a home without the use of any other dwelling and providing the level of security, facilities and privacy that a homeowner would require.
As more than one dwelling is being purchased in these situations the interaction with the additional 3% surcharge always needs to be considered.
Mr Fletcher is purchasing a house with an annex for £500,000. Without any claim the SDLT on this purchase would be £27,500 as the additional 3% SDLT is likely to apply.
The annex qualifies as a dwelling for multiple dwellings relief reducing the SDLT to £15,000.
The annex may have qualified as a subsidiary dwelling in which case the additional 3% would not apply but multiple dwellings relief would still be available. Potentially saving of a further £10,000.
Moving to the UK and buying property
When relocating to a new country there is a lot to consider, and taxation should be part of those considerations. In addition to being under a new jurisdiction's tax regime from arrival, SDLT will be due on your new house purchase.
There is a 2% additional SDLT rate for purchases by non-UK residents, but how does this work if you are moving to the UK permanently?
Miss Delacour is moving to the UK from France, for work and to be closer to her fiancé. She buys a flat for £300,000 before the move.
As Miss Delacour spent more than 6 months of the year immediately prior to the purchase outside the UK, she is subject to the additional 2% and will have an SDLT liability of £8,500.
As she has moved to the UK, there is potential for £6,000 of this liability to be reclaimed from HMRC. This will be possible if within the year following the purchase there is a period in which if you looked back at the previous 365 days, 183 of them have been spent in the UK.
3% surcharge if living in a rental property
Many are aware that if you are replacing your main residence, then the 3% surcharge does not apply.
For this to apply there needs to be a disposal of the major interest in the original residence (a sale) before or within 3 years of the purchase.
Miss Evans rents a flat with a couple of friends and has been saving to buy her own house. She also inherited a property that she lived in shortly before moving to the city 5 years ago and now lets the property for some extra income.
On purchasing her new home Miss Evans is subject to the 3% surcharge. As moving out of her rented flat does not satisfy the disposal condition.
However, what if she sells the rental property? If she sells the property prior to the new purchase, then there is no 3% surcharge as she will only own a single property on the day of completion.
What if she sells in the 3 years after purchase? In this case there is a second 3 year test which comes into play and as Miss Evans was not living in the inherited property in the 3 years prior to the purchase the 3% still applies.
Get in touch
Head spinning? SDLT can be a minefield and depends in all cases on the exact circumstances of the purchaser.
At Rickard Luckin we have SDLT specialists who are ready to assist. Please contact Jamie Nice at email@example.com or David Tallon at firstname.lastname@example.org for more information.
If you have any questions about the above, or would like more information specific to your circumstances, please enter your email address below and we will get in touch: