Temporary SDLT cut from 15 July 2020 to 31 March 2021 – What you need to know

Stamp duty land tax (“SDLT”) is a tax on property purchases in England and Northern Ireland. In the recent fiscal update, the government announced that from 8 July 2020 to 31 March 2021 the residential rates of SDLT would be reduced as follows:

Property or lease premium or transfer value SDLT rate
Up to £500,000 Zero
The next £425,000 (the portion from £500,001 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%

 

The above rates apply where you are purchasing your main residence. If you are purchasing a holiday home or buy to let residential property as an individual or through a company then the 3% surcharge still applies as follows:

 

Property or lease premium or transfer value SDLT rate
Up to £500,000 3%
The next £425,000 (the portion from £500,001 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%

 

Both companies and individuals purchasing residential property worth less than £500,000 will benefit from the changes to SDLT.

It is worth remembering that corporate bodies acquiring residential property worth over £500k will continue to be subject to SDLT at 15% in certain cases where it is not used for a property rental or development trade for instance.

From April 2021 a further 2% surcharge on top of the 3% surcharge will apply to non-residents acquiring residential property which is not their main home.

 

Should I be considering transferring property in to or out of a Company?

You may think it’s a good time to consider incorporating your residential property portfolio or extracting properties from your company. Whether this is worthwhile really needs to be addressed on a case by case basis and there are factors other than SDLT to consider – Capital Gains Tax and the Annual Tax on Enveloped Dwellings (ATED) also need to be thought through.

Remember that the 3% surcharge applies to any residential property bought by companies except where the higher 15% rate applies.  For individuals the 3% surcharge will apply unless that property is your main residence.

Transferring property into a company you own is a transaction between connected persons and so the SDLT is chargeable on the market value of the property transferred.  If this is more than £500,000 SDLT will be chargeable. There are reliefs if the transfer is of more than one property – Multiple Dwellings relief can reduce the amount of SDLT payable and if more than 6 properties are transferred, the non-residential rates of SDLT can apply. It is possible for property to be transferred from a partnership to a company without an SDLT charge but such transfers need to be carefully considered.  Remember, even if individual properties are worth less than £500,000, each transfer may come within the “linked transactions” rules in which case the SDLT is chargeable on the combined market value.

Further information can be found in HMRC’s guidance at:

https://www.gov.uk/stamp-duty-land-tax

https://www.gov.uk/guidance/stamp-duty-land-tax-temporary-reduced-rates

In short, if you are thinking of transferring residential property into a company, the SDLT rules are complex and whilst the SDLT reduction just announced may be helpful, it does not provide a solution that benefits everyone.

Please contact one of our tax team if you would like to discuss the opportunities the SDLT cuts have provided and how they may affect you and/or your business.

Rob Durrant Walker, Business Tax Technical Director – rdwalker@garbutt-elliott.co.uk 

Karen Sadler, Business Tax Consultant – ksadler@garbutt-elliott.co.uk

Naveen Sahney, VAT + Customs Duties Advisor – nsahney@garbutt-elliott.co.uk