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This month Jonathan Walker, head of commercial conveyancing provides a brief overview of the laws relating to residential and non-residential Stamp Duty Land Tax (‘SDLT’) and the rates and reliefs available.

Stamp Duty Land Tax is one of the most unpopular taxes in the UK hitting homeowners and investors just at the time when everyone usually needs every bit of money they can find.

With the speculation of further legislative changes in the oncoming budget in April 2020 we thought it appropriate to provide a background and current overview of this contentious and disliked tax.

A brief history of “Stamp Duty”

Stamp duty was first introduced in England on 28 June 1694 as “An act for granting to their Majesties several duties upon vellum, parchment and paper, for four years, towards carrying on the war against France”.

Even though the duty was only supposed to be charged for four years from 1694 it remains in place today.   It was extended throughout the eighteenth century on such items as “playing cards, Dice, Almanacks, Advertisements, Newspapers, hats, Gloves and mittens, Attorneys’ and solicitors’ licences, Pawnbrokers’ licences, Hair powder, Perfumes and cosmetics” finally extending in 1808 to a duty on conveyances of sale, including transfers of land and shares.

Apart from transfers of shares and securities, the issue of bearer instruments and certain transactions involving partnerships, stamp duty was largely abolished in the UK from 1 December 2003 and “Stamp duty land tax” (SDLT), a new transfer tax derived from stamp duty, was introduced for land transactions from 1 December 2003.

Stamp duty land tax on transactions was replaced in Scotland by the new Land and Buildings Transaction Tax (LBTT) from 1 April 2015 and replaced in Wales by Land Transaction Tax on 1 April 2018.  The applicable rates and rules for LBTT and LTT are outside the scope of this article.

The Applicable Rates

SDLT is split between the ‘Residential Property Rates’, including both a basic and higher rate, and ‘Rates for Non-Residential and Mixed Land and Property’.  There are various exemptions and reliefs available for both rates.

The rates are payable on portions of the property prices as follows:

SDLT RESIDENTIAL RATE

PROPERTY OR LEASE PREMIUM OR TRANSFER VALUE RATE (%)
Up to £125,000 Zero
The next £125,000 (the portion from £125,001 to £250,000) 2
The next £675,000 (the portion from £250,001 to £925,000) 5
The next £575,000 (the portion from £925,001 to £1.5 million) 10
The remaining amount (the portion above £1.5 million) 12

 

SDLT HIGHER RESIDENTIAL RATE

PROPERTY OR LEASE PREMIUM OR TRANSFER VALUE RATE (%)
Up to £125,000 3
The next £125,000 (the portion from £125,001 to £250,000) 5
The next £675,000 (the portion from £250,001 to £925,000) 8
The next £575,000 (the portion from £925,001 to £1.5 million) 13
The remaining amount (the portion above £1.5 million) 15

 

Rates for Non-Residential and Mixed Land and Property

PROPERTY OR LEASE PREMIUM OR TRANSFER VALUE RATE (%)
Up to £150,000 0
The next £100,000 (the portion from £150,001 to £250,000) 2
The remaining amount (the portion above £250,000) 5

 

When does the Higher Rate Apply?

Companies

All companies / corporate bodies must pay the higher rate for purchases of residential properties over and above £40,000.  The Property must also not be subject to a lease which has more than 21 years left.  If the property costs more than £500,000, the 15% higher threshold SDLT rate for corporate bodies may apply instead.  Please note special rules for apply for purchases in the name of Partnerships and Trust Assets.

Individuals

Individuals must pay the higher rate when they purchase residential property (or a part of one) for £40,000 or more, if ALL the following apply:

  • it will not be the only residential property worth £40,000 or more that you own (or part own) anywhere in the world;
  • you have not sold or given away your previous main home; and
  • no one else has a lease on it which has more than 21 years left to run.

There is a specific exclusion if you are using the property for your main residence AND you either have sold or given away your last main home before you buy your new home or do so on the same day.   If your property is a mixture of residential and non-residential then the ‘non-residential’ rates apply.

Reliefs

There are numerous reliefs available which have their own specific conditions beyond the scope of this article including but not limited to:

  • First Time Buyers’ Relief
  • SDLT relief for multiple dwellings
  • Building company buys an individual’s home
  • Employer buys employee’s house
  • Compulsory purchases
  • Property developer subject to planning obligations
  • Transfer of property between companies
  • Relief for charities
  • Right to Buy properties
  • Registered social landlords
  • Other reliefs

 SDLT and the future

The total SDLT receipts for the fiscal year ending 2019 was £11.94 billion.  Whilst this seems like a large figure it is dwarfed by the total UK HMRC tax receipts for the same period which total £623.4 billion.

There is always speculation in the media and various government administrations agenda about stamp duty reform recent examples include the proposal in July 2019 to scrap SDLT for homes below £500,000 and then speculations that the levy ought to be paid by the Seller in August 2019, a claim which was later denied by the Government.  Pressure again is mounting against the new chancellor to revamp the rules relating to SDLT causing potential purchasers to hold back on transactions until after the Budget just in case any favourable rules are introduced.  The prospect of less favourable rules being introduced must also not be discounted!

It is important to remember when dealing with any property transaction that you obtain the correct advice from your solicitor accountant or other specialist tax advisor of the implications of SDLT and the various rules exemptions and reliefs.  The potential savings or indeed penalties for incorrect submissions can be substantial.

Jonathan Walker and the rest of the residential and commercial property team at Walker Solicitors can provide expert guidance in all matters relating to residential and commercial property transactions.  If you have any other queries relating to SDLT or any have any queries whatsoever regarding conveyancing please contact Jonathan or a member of the team.

 

 

 

 

 

 

 

 

 

About the Author, Jonathan Walker.

Jonathan joined the firm as a trainee in 2004, qualified as a solicitor in 2007 and became a partner in 2011.
Head of the Commercial and Residential Property Department.
Fully qualified member of the Society of Trusts and Estate Practitioners (STEP)

T:   01922 639 080

@:  jwj@walkersolicitors.com

 




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