Reduced rates of Stamp Duty Land Tax
Reduced rates of stamp duty land tax (SDLT) lasting until 31 March 2021 were announced on 8 July 2020 with immediate effect. The holiday applies to all residential property, whether liable at standard rates or at higher rates, where completion occurs within the period 8 July 2020 to 31 March 2021.
New Rates of SDLT during the Holiday:
There is some guidance from HMRC here.
The table below shows the reduced rates of stamp duty land tax for “standard rate” purchases from 8 July 2020 onwards.
|So much as does not exceed £500,000||0%|
|So much as exceeds £500,000 but does not exceed £925,000||5%|
|So much as exceeds £925,000 but does not exceed £1,500,000||10%|
|o much as exceeds the remainder, if any||12%|
For “higher rates” purchases we have to add an extra 3% of the whole price. This means that the same reduction in the amount of SDLT applies to both kinds of transaction during the SDLT holiday period. The maximum saving for a transaction involving one dwelling is £15,000 and applies where the purchase price is £500,000 or more.
The standard rates apply for example where the buyers have no other properties or where they are selling an existing home and buying a new one.
The higher rates apply for example where a company buys residential property, or where individuals buy when they own another property and do not meet the “replacement of main residence” tests.
What if I had previously exchanged Contracts?
There is nothing to stop the benefit of the saving, so long as completion happens between 8 July 2020 and 31 March 2021. The only problem would be if there was “substantial performance” before 8 July 2020 which could be by taking possession of the property before then.
Does this saving apply to purchases of residential property by Companies?
Yes, these changes apply to higher rate transactions as well; we just add 3% of the price to the SDLT which would be due on the reduced standard rates.
Some buyers of a new home consider transferring their old home into a company so that the purchase of the new home can escape the 3% surcharge. The company has to pay stamp duty land tax on the prevailing rates on the market value of the property it acquires.
There is still a trap for acquisitions by companies for over £500,000, where the 15% flat rate of SDLT can still apply. Care needs to be taken here to make sure that one of the reliefs from the 15% rate applies to leave the new SDLT rates (with the extra 3%) in place.
Those with buy to let portfolios who have been considering transferring the properties to a limited company will find the SDLT cost is lower than before the rates reduction. The limited company could be special purpose vehicle, perhaps a family investment company.
How does this work for Lease Extensions?
The same principles apply to the payments made for residential lease extensions. So often there will be no SDLT to pay where the premium payable for the extended lease does not exceed £500,000. But care needs to be taken in case the 3% surcharge applies. This could be the case if the lessee (or a spouse / civil partner) has other property interests.
I am buying from a developer and agreed an allowance against the price for Stamp Duty.
If contracts have already been exchanged and the contract contains an allowance / incentive on account of stamp duty for a fixed amount of money, then it might well be that the allowance has to be taken off the amount paid to the developer at completion, even though there is now no (or reduced) SDLT to pay to HMRC. It will depend on the wording in the contract.
If contracts have not yet been exchanged, then the parties might need to renegotiate the allowance. For example they might decide instead to give the equivalent extra value through enhancements to the specification of the property or through a cash incentive. This change might have to be notified to the lender, though many mortgage lenders have already said a new Disclosure of Incentives Forms will not be needed.
What about ‘Help to Buy’?
Homes England have confirmed that the ‘Help to Buy’ process is not affected by the stamp duty changes. It is only increases in incentives which would need to be reflected in the Disclosure of Incentives Form required for ‘Help to Buy’ equity loans. If the incentives switch from one form to another then the disclosure form does not need to be amended; this is only required where the incentives increase. Incentives still cannot be more than 5% of the full purchase price.
What about First Time Buyers’ Relief?
First time buyers’ relief does not apply for the period of the holiday because the reduced rates are more generous than the rates where first time buyers’ relief applied, which only gave a relief for up to £300,000 of the price. It is set to revive though after 31 March 2021.
For more information and guidance regarding the reduced rates of stamp duty land tax holiday… talk to Tollers on 01604 258558 and the Conveyancing and Commercial property teams will assist you.