Stamp Duty Land Tax (SDLT) is a tax that we have all heard of and is considered an additional cost of purchasing property. However, with the introduction of the 3% surcharge 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 have different rates for 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.
Mr & Mrs Brown are looking to purchase a countryside property with some adjoining land for £1.5m. SDLT on this residential purchase has been calculated at £93,750.
On review the land can be split into two plots and the sale also split into the house and garden for £1.3m and a paddock across a small road for £200k. As the land is “non residential” this is a mixed use property and the “non residential” rates apply to the total consideration saving £29,250.
Multiple dwellings relief
Multiple dwellings relief is available where a transaction contains 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 value of each dwelling rather than the total consideration of the transaction. This can lead to savings, due to the lower rates available on SDLT bands.
As more than one dwelling is being purchased the interaction with the 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 £30,000 as the additional 3% SDLT is likely to apply.
The annex qualifies as a dwelling for multiple dwellings relief reducing the SDLT to £20,000.
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 £15,000.
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 year 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 rents the property.
On purchasing her new home Miss Evans is subject to the 3% surcharge. As moving out of her rented flat is not relevant for the disposal rules.
However, what if she sells the rental property? If the sale is before her purchase and these are both before 26 November 2018 then there is a land transaction prior to purchase of a dwelling that has been her main residence, therefore, no 3% surcharge.
What about if the sale is after the purchase or purchase is after 26 November 2018? Then there is a second 3 year test comes into play and as Miss Evans was not living in the property in the 3 years prior to the purchase the 3% applies.
Head spinning? SDLT can be a minefield and depends in all cases on the exact circumstances of the purchaser.