Stamp Duty Land Tax (SDLT) seems to be more common amongst tax questions from our clients. I am sure this is not least because there have been multiple changes and increases to the SDLT rules and rates over the last few years. It may be worth sharing property interests around the family but how could this affect the SDLT position? The rates are not repeated here but a useful SDLT calculator is provided by HMRC.
1) When does the extra 3% SDLT charge apply for additional residences?
The higher rates apply to the purchase of a major interest in a single dwelling by an individual, if, and only if, four conditions are met:
Condition A – the chargeable consideration is £40,000 or more;
Condition B – the dwelling is not subject to a lease which has more than 21 years to run on the date of purchase;
Condition C – the purchaser owns another dwelling met by conditions A & B at that date; and
Condition D – the dwelling being purchased is not replacing the purchaser’s only or main residence. There are rules setting out what constitutes a main residence for this purpose.
2) What if two or more purchasers buy a dwelling?
Where a transaction is entered into by joint purchasers, the higher rates will apply if the transaction would be a higher rates transaction for any of the purchasers considered individually. So, if there are two individual purchasers and Conditions A to D are all met for one of them only, the transaction will be charged at the higher rates.
A partner in a partnership will be treated as a joint purchaser by or on behalf of the partnership. In this case, the tests need to be applied for all the partners and if any one partner would be liable to the higher rates then the whole purchase will be so liable.
However, some interests in dwellings held by a partner in a partnership can be ignored. This applies where an individual purchaser is a partner in a partnership and is purchasing a major interest in a dwelling that is not being purchased for partnership purposes.
3) Will the extra 3% rate apply if one of my children buys a dwelling?
The beneficial owner of the dwelling is counted as the owner for SDLT purposes. In addition, if a minor child is the beneficial owner (i.e. under a trust) then the parents of that child (and, if the parents are not married to one another, the spouses or civil partners, if any, of those parents) are treated as the owners.
4) How can SDLT be reduced when the family has a property rental business?
Multiple dwellings relief (MDR) can mitigate the amount of SDLT chargeable on the purchase of two or more dwellings. MDR can reduce the rate of SDLT to a minimum of 1% and is calculated on the average price for each dwelling. So, (assuming the purchaser already has a main residence) if a property investor buys seven apartments for £560,000 the residential SDLT for these linked transactions would be (£34,800). However, the average price is £80,000 and is below the threshold of £125,000 for a single dwelling and so the 3% additional rate applies (£80,000 @3% = £2,400 x 7 = £16,800) a saving SDLT of £18,000.
5) Could the non-residential rates be applied if six or more dwellings are purchased?
The non-residential rates apply to ‘mixed-use’ purchases and these are deemed to include acquisitions of six or more dwellings. HMRC issued a guidance note about the 3% additional rate and this states at paragraph 5.12:
“Where six or more dwellings are purchased in a single transaction the purchaser can choose whether to apply the non-residential rates of SDLT or claim multiple dwellings relief and pay the higher rates. [Section 116(7) FA 2003]”
In the example above, the non-residential SDLT would be £17,500 and so not quite worth it.
The multitude of SDLT rules and conditions make it very complicated to advice on the tax consequences for property transactions, especially those involving residential properties.
SDLT is declared and calculated using a SDLT return sent to HMRC. A SDLT return must be filed and payment made within 30 days of the effective date (usually completion) of the transaction. To file a return the main purchaser or agent acting on their behalf will need to complete a SDLT1 return. Penalties can apply to returns filed late.
As with all such tax situations, advice should also be sought before proceeding. For further details contact us.