New lower SDLT residential threshold
New lower SDLT residential threshold
Back in July 2020, the residential stamp duty land tax threshold in England and Northern Ireland was increased to £500,000 to help stimulate the property market after the first wave of the Covid-19 pandemic. The increased threshold was originally due to apply from 8 July 2020 until 31 March 2021, but as the Covid-19 pandemic continued to run, the Chancellor announced at the time of the 2021 Spring Budget, that the temporary threshold would remain at £500,000 until 30 June 2021. From 1 July 2021, the threshold falls to £250,000, remaining at this level until 30 September 2021, before reverting to the usual level of £125,000 from 1 October 2021. For first time buyers, the threshold reverted to £300,000 from 1 July 2021 for properties costing £500,000 or less.
Similar initiatives were introduced in Scotland in relation to land and buildings transaction tax (LBTT) and in Wales in relation to land transaction tax (LTT). In Scotland, the LBTT threshold was increased to £250,000 from 15 July 2020 until 31 March 2021. However, there was no extension beyond 31 March 2021, and the threshold reverted to £145,000 from 1 April 2021. In Wales, the LTT was increased to £250,000 from 27 July 2020, originally until 31 March 2021. However, this was extended until 30 June 2021. The threshold reverted to £180,000 from 1 July 2021.
Missed the 30 June deadline
If you are looking to buy property in England or Northern Ireland and missed the 30 June 2021 deadline, there is still the opportunity to benefit from a reduced temporary threshold, as long as the purchase completes by 30 September 2021.
Completing by this deadline could save up to £2,500.
Investment properties
For SDLT purposes in England and Wales and for LTT purposes in Scotland, investors and second-home owners were able to benefit from the increased threshold, with the second property supplement (3% for SDLT purposes and 4% for LTT purposes) being applied to the rates as reduced. However, those buying second homes in Wales were not able to benefit.
Example
Julia is looking for a property to let out as a holiday let. She finds a property in June 2021 and her offer of £400,000 was accepted.
If she is able to complete by 30 September 2021, she will pay SDLT of £19,500 ((£250,000 @ 3%) + (£150,000 @ 8%).
However, if she misses this deadline, completing on or after 1 October 2021, she will pay SDLT of £22,000 ((£125,000 @ 3%) + (£125,000 @ 5%) + (£150,000 @ 8%)). Completing by 30 September 2021 will save her £2,500 in SDLT.
SDLT Multiple Dwellings Relief
SDLT Multiple Dwellings relief
Multiple dwellings relief’ (MDR) allows a rate to be charged at the percentage payable on the ‘average value’ price (referred to as the ‘Average Value SDLT’ (AVSDLT)) should more than one property be purchased at one time, rather than on the total consideration. MDR is only available for residential transactions.
The purpose of this relief is to simplify the calculation of SDLT when a single transaction includes the purchase of more than one dwelling. As such, rather than separately calculating the SDLT on each property acquired, SDLT is computed as follows:
- Calculate the ‘AVSDLT’ i.e. total dwellings consideration/ total number of dwellings.
- Multiply the resultant figure by the total number of dwellings.
The answer is the total SDLT liability.
NOTE 1: The SDLT must be at least equal to 1% x total dwellings consideration.
NOTE 2: the dwellings are not the main residence of the purchaser and as such the additional rate of 3% applies.
Basic example
A single transaction (post 1 October 2021) comprises the purchase of 4 ‘dwellings’ for £950,000.
- £950,000/4 = £237,500 per dwelling
Tax per dwelling =
- 3% x £125,000 = £3,750
- 5% x £112,500 = £5,625
£9,375 x 4 dwellings = £37,500
The minimum tax is 1% of the purchase price = £9,500
Tax payable without claiming MDR would be £67,250.
Definition 1: ‘Dwelling’
Legislation does not define ‘dwelling’ but is widely accepted as being a building or part of a building that accommodates all of a person’s basic domestic living needs. The definition has seen granny annexes, converted garages, pool houses, converted party barns and garden offices all qualify for the MDR relief.
The nearest the legislation gets to providing a definition is FA 2003 sch 6B para which states that a dwelling is:
‘A building or part of a building counts as a dwelling if-
- It is used or suitable for use as a single dwelling, or
- It is in the process of being used constructed or adapted for such use.’
One area where there have been several tax cases that have considered this definition centre round ‘granny flats’. HMRC has confirmed that provided the granny flat is a self-contained dwelling and the main house comprises more than two thirds of the total, then MDR can be claimed. One of the main issues is where a property has an additional dwelling that cannot be accessed independently. For example, in a recent tax case relief was refused as there was no door separating the house from its annexe; it also did not have a separate postal address, council tax or utility supply.
The relief does not apply to the transfer of a freehold reversion or head lease where a dwelling has a long lease of 21 years or more.
Definition 2 – ‘Single transaction’
MDR can be claimed where the transaction involves an interest in at least two dwellings or at least two dwellings and some other property.
Where six or more separate dwellings are the subject of a single transaction involving the transfer of a major interest in, or the grant of a lease then the SDLT rules treat those dwellings (for that transaction alone) as being non-residential property. This rule applies automatically. Therefore, depending on the figures, it might be better not to make an MDR claim. If one is made it is made on a land transaction return (due within 30 days of completion) or in an amendment to a return, the time limit for which is 12 months from the filing date.
Selling your main residence with land – Will the SDLT return trip you up?
Most people do not expect to pay capital gains tax when they sell their only or main home, particularly if the property has been their only home for their entire time that they owned it. However, what is less well known is that the exemption places a limit on the amount of garden that falls within the main residence exemption. This may catch out those who sell their main residence and have large gardens or land.
What is allowed?
The legislation allows grounds up to the ‘permitted area’ to fall within the main residence exemption. This is set at 0.5 of a hectare (1.24 acres). However, a larger area may be allowed where, ‘having regard to the size and character of the dwelling’ this is required for the reasonable enjoyment of the property.
Case law
The case of Phillips v HMRC UKFTT 381 TC concerned the sale of the Phillips’ main residence, which had a garden of 0.94 of a hectare. As it was their main residence, the Phillips did not declare the gain to HMRC. HMRC investigated the disposal while checking SDLT returns in March 2017, having discovered that at 0.94 of a hectare, the grounds exceeded the permitted area of 0.5 of a hectare allowed by the legislation.
In considering whether the larger grounds were needed for the reasonable enjoyment of the property, recourse was made to previous decisions. These included the case of Longston v Baker 73 TC415, in which the taxpayer contended that land in excess of 0.5 of a hectare was needed to house and graze his horses. However, the judge noted that it was ‘not objectively required, i.e. necessary, to keep horses at houses in order to enjoy them as a residence’.
In the Phillips’ case, the Tribunal found in their favour, ruling that the land was required for the reasonable enjoyment of the property, which is large and in a rural area. However, as previous decisions show, it is far from a given that the Tribunal will always rule in the taxpayer’s favour when it comes to deciding whether land sold with a house falls within the main residence exemption.
Caution required
Some caution is required when selling a property that has substantial grounds, particularly if some of the land is used for equestrian purposes. The purchaser will pay SDLT, and where this is at mixed property rather than residential rates, a review of the SDLT returns may trigger an investigation.