Residential Property Partner Andrew Tress writes on the recently announced ‘Stamp Duty Land Tax holiday’.
On 8 July 2020, the Chancellor announced a number of measures aimed at helping the economy recover from the Covid-19 pandemic. One of the biggest announcements was of a Stamp Duty Land Tax (“SDLT”) holiday, which will be in place from 8 July 2020 until 31 March 2021.
What does the SDLT holiday actually mean for individual buyers?
In short, it’s good news!
The measures introduced temporarily increase the threshold at which SDLT is payable from £125,000 to £500,000. As a result, a large number of buyers will no longer face having to pay SDLT at all, and others will make significant savings of up to £15,000.
Individual buyers of second or additional properties will still pay the 3% ‘higher rate’ surcharge, but they too will benefit from the holiday since only 3% SDLT will be payable up to that value (unless the price is below £40,000, when nothing is payable anyway).
How much will I save?
The amount of SDLT you pay depends on the purchase price of the property you are buying, but the table below gives some examples of the savings buyers stand to make:-
What happens after 31 March 2021?
After the SDLT holiday ends on 31 March 2021, the rates will go back to what they were before.
What about non-residential property?
Only residential rates of tax are reduced. Non-residential rates remain the same.
What about transactions that completed just before the announcement?
Unfortunately, buyers whose ‘effective date’ was on or before 7 July cannot apply for any refund and do not benefit from the holiday.
The ‘effective date’ of a transaction is generally completion (i.e. the day the money is sent to the seller’s solicitors and the keys are handed over to you), save for some circumstances of what is known as ‘substantial performance’.
I am a first time buyer. Wasn’t there already a relief for purchases?
Yes, there was already a First Time Buyer Relief in place, but the new SDLT holiday is more beneficial even to first time buyers since it increases the threshold at which SDLT is payable.
Previously, the First Time Buyer Relief applied only to the first £300,000 and only for purchases up to £500,000. First-time buyer’s relief has therefore effectively been suspended during the SDLT holiday.
What about multiple dwellings relief?
Multiple dwellings relief (“MDR”) can be a tricky issue and very much works on a case by case basis. However, where a buyer purchases two or more dwellings as part of a transaction, they can often claim MDR, which can sometimes reduce the amount of SDLT payable.
However, where MDR is claimed, there remains a minimum tax rate of 1%. In practice, this means that it is better not to claim the relief if the total price for all the dwellings would be taxed at 1% or less.
If you think that your proposed purchase may benefit from MDR, please speak to a member of our Residential Conveyancing team as specialist advice will be required.
What about mixed use property?
Where a property that you are buying encompasses both residential and non-residential elements (e.g. a shop with a flat above), the whole transaction is taxed at the non-residential rates.
Under the usual SDLT rates, and outside of this SDLT holiday, non-residential rates are cheaper, but between 8 July 2020 and 31 March 2021, for a mixed use purchase worth up to £1.215m, the reduced residential rates will actually be cheaper than non-residential rates.
It is however worth noting that non-residential rates are always cheaper than the higher SDLT rate.