Stamp Duty Land Tax (SDLT) is a tax that has become more complex and as a result people are being caught out and overlooking some valuable reliefs.

What is SDLT?

It is a tax chargeable on land transactions only, in the main this covers freehold interests, leasehold interests, freehold reversions, options and exchanges. Chargeable consideration is key, this is any consideration in money or money’s worth, given for the subject matter, directly or indirectly. The subject matter of a contract is key.

Higher rates for additional residential properties and relief for a replacement main residence

From the 1st April 2016 an additional 3% surcharged is added to the existing SDLT rates, when purchasing a second property or you already have a number of properties and are buying additional properties. The rules apply to Companies and some Trusts also, and the 3% is applicable on the first purchase, there is no exemption for the first property acquired by a Company or Trust.

There is relief when you are replacing your main residence when there is a delay in selling your first home, provided your first home is sold 36 months. So, you will initially need to pay the surcharge, but can reclaim it.

Is the property suitable as a dwelling?

We mentioned the 3% surcharge however, consider, is the property suitable for use as a dwelling at the time of completion; this is a point in time test. If the property is not suitable, i.e. due to damage, then it is liable to the non-residential rates of SDLT and no 3% surcharge applies.

Tips:

• Multiple Dwellings Relief – this relief is often overlooked and can reduce the SDLT
• Partnerships – valuable reliefs such as incorporation relief
• Group relief – there can be SDLT exemptions within group arrangements
• Mixed Property – residential and non-residential SDLT vary

Traps:

• Linked Transactions – be careful, this can trigger higher amounts of SDLT
• Higher rates for companies – up to 15%
• Partnerships – clawback of relief within a specified time period
• Group relief – clawback of relief within a specified time period
• Loans and transfer of debt – act with caution so as not to get caught out

Reporting Requirements

The reporting deadline for SDLT has recently been reduced to 14 days and in most cases, you still need to submit a SDLT form, even if there is no SDLT to pay, unless the transaction is exempt.

Frequently asked questions…

Can an interest in the former matrimonial home be ignored for the purposes of the 3% surcharge?

It is common that after divorce one party will move out of the matrimonial home allowing the other to remain there with children, indefinitely or until the children reach adulthood. The party that has moved out of the home may therefore remain on the house deeds and mortgage and effectively still own their share, and this means when they come to purchase a new property for themselves, they will own more than one property and be subject to the 3% surcharge.

However, there is a way to prevent this through Court order. If there is a property adjustment order pursuant to the Matrimonial Causes Act 1973, in favour of the person remaining in the property, then the 3% surcharge can be ignored for the purposes of the 3% surcharge.

I part own my home and want to acquire greater ownership of the property; do I have to pay the 3% SDLT? Does my current share counts as already owning one property?

Where you are acquiring a greater share of a property you own, this is not additional property and therefore the 3% surcharge does not apply.

I owned a property years ago, but I am now renting and looking to buy again. As I will effectively be a first-time buyer and have no chain, do I qualify for the first-time buyer’s relief for Stamp Duty?

In short, no you won’t. First time buyer’s relief for Stamp Duty means you don’t have to pay any Stamp Duty up to £300,000, and 5% up to £500,000. If the price is over £500,000 you follow the normal rules in line with if you had purchased property before.

However, the conditions are, you must not have owned property before, ever. This includes the UK and overseas.

This is why it is important for families considering passing on properties to their children and grandchildren to consider this point, and perhaps holding back plans until they have acquired their first home and can benefit from this relief.

However, if you hold property in a Company and the property was purchased direct in the Company with no personal ownership by you, then this doesn’t prevent you from qualifying for the relief.

I have two properties, one in London and one in Cornwall. I live in the London property in the week for work and travel to Devon to be with my family at weekends. Cornwall is my home however, I made an election under Principal Private Residence for Capital Gains Tax (CGT) purposes for the London property, as I felt this property would go up in value more and I wanted to shelter the gain from CGT. I did this as I know you can make an election for CGT to choose which property benefits.

The problem is I now want to move house in Cornwall and I am worried I will have to pay the additional 3% surcharge as I won’t be able to say I am replacing my main home, as I have made an election the London property is my main home.

CGT and SDLT, follow different rules. For CGT you can make an election which property is your main home, for SDLT you cannot, and it is a case of which property is actually your home. It is not necessarily where you spend more time, but which is most important. Couples don’t have to have one main residence between them for SDLT but if the London property was deemed to be one party’s main home, then the replacement of the Cornwall property would not be a replacement for both parties and therefore the additional rate would apply.

There is a checklist and indicators that should be reviewed to determine which property is your home for SDLT and if this was conclusive in being the Cornwall property, then this could mean the additional rate wouldn’t apply and you would have CGT relief on your London property.

I own property jointly with my wife and I have been told that means I can transfer the properties into a Limited Company without paying SDLT, is this true?

No and act with great care when receiving any advice in relation to the transfer of a property portfolio to a Limited Company. There is both CGT and SDLT to consider and valuable reliefs, which need to be reviewed in great detail to ensure you qualify for, otherwise this would be expensive to get wrong.

The relief that is relevant for SDLT can enable the transfer of properties from a partnership to a Limited Company with Zero SDLT however, this is specific to an actual partnership and not mere joint ownership. Demonstrating that the properties are ran as a commercial partnership with a view to the realisation of making profits, supported by full accounts, a partnership agreement and many other considerations is essential, to successfully claiming this relief.

This is not to say that joint owners of property could not formalise their position, but seeking professional advice is key.

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