SDLT – A summary of recent changes

Stamp Duty Land Tax (‘SDLT’) has become increasingly complex in recent years. The introduction of the surcharge rate (+3%) from 1 April 2016 for the purchase of an additional dwelling and the new surcharge (+2%) for non-resident purchasers to be introduced this year, means SDLT can be both a high cost and tricky to navigate.

The good news

To ignite the property market during COVID-19, the government announced a temporary reduction in SDLT for all purchases of residential property where completion occurs between 8 June 2020 and 31 March 2021. The 0% rate is for properties worth up to £500,000, thereafter the normal SDLT rates apply. This can generate significant tax savings – up to £15,000.

This reduced rate applies to all buyers, individual or corporate. It still applies when the purchaser is subject to the surcharged rate (+3%) on the purchase of an additional dwelling. In this case the first £500,000 will be subject to 3% SDLT, and thereafter the normal surcharged rates will apply. It is also worth noting that reliefs, such as Multiple Dwellings Relief, still apply resulting in a very tax efficient outcome when combined with the reduced rate of SDLT.

Another piece of good news is that HMRC have recently confirmed the availability of Multiple Dwellings Relief (‘MDR’) for subsidiary dwellings. Broadly a subsidiary dwelling is one located in the same building or garden/grounds of the main dwelling and the value is no more than a third of the overall purchase price, typically annexes or granny flats.

Where a property transaction includes a separate subsidiary dwelling, the surcharge rate (+3%) for additional dwellings will not apply (unless the acquisition is not a replacement of the purchaser’s main residence). However there was concern that the application of MDR, which is available on the purchase of multiple dwellings, would actually trigger the +3% surcharge rate.

HMRC have now confirmed that where all the relevant conditions are met, MDR is available on a transaction involving a subsidiary dwelling and this will not trigger the surcharge rate of SDLT. When MDR applies, the SDLT rate is calculated on the average price of the dwellings being purchased. This can result in significant tax savings for a purchaser.

For example, a transaction for a property worth £1.5m at current SDLT rates would result in tax of £78,750 being payable (£93,750 from 1 April 2021). If the property had a separate dwelling such as an annex/granny flat which met the conditions to treat it as a subsidiary dwelling, then the SDLT payable could be reduced to £25,000 (£55,000 from 1 April 2021).

In addition, the government introduced a relief for first time buyers from 22 November 2017: relevant again from 1 April 2021 when the temporary reduction for all buyers ceases.  This applies 0% to the first £300,000 and 5% from £300,001 to £500,000, thereafter the normal rates of SDLT apply.

The less good news

On a less generous note, from 1 April 2021 there will be an additional (+2%) surcharge rate for non-residents purchasing residential property in the UK. This applies to non-resident individuals, companies, partnerships, unit trusts as well as beneficiaries of life interest and bare trusts and some trustees. Therefore an individual could be subject to the +3% surcharge for the purchase of additional dwellings as well as the +2% non-resident surcharge; an effective +5% rate on a transaction.

The calculation of SDLT is very complex and depends on the number of properties being purchased, whether the properties are residential, non-residential or a mix, who is purchasing the property, how many dwellings are being purchased, and many other factors. It is always worth getting professional advice to ensure you are paying the right amount of tax whilst claiming any available reliefs.

Zoe Flanagan is a Business Tax Advisor at Garbutt + Elliott LLP and can be contacted on Zflanaghan@garbutt-elliott.co.uk.