SDLT holiday until Spring 2021
The Chancellor announced on 8 July 2021 an immediate increase in the nil rate band of Stamp Duty Land Tax to £500,000. This will be very welcome news to homebuyers as over 80% of home purchases will not need to pay any SDLT if purchased before 31 March 2021. For a home purchased for £500,000, the SDLT saving is worth £15,000, and for the average house purchase in England of £247,000 a saving of £2,440.
However, the 3% surcharge applicable to the purchase of second homes by individuals and all purchases by businesses will continue. The 15% flat super rate for purchases by corporates is unchanged where the purchase price is over £500,000.
The rates for SDLT on a residential purchase are now:
|Normal rate||3% surcharge for additional rate|
|0 – 500,000||0||3%|
|500,001 – 925,000||5%||8%|
|925,001 – 1,500,000||10%||13%|
Ok, so lets consider what the changes mean…
What if I completed my house purchase on 7 July, can I claim a reduction in the SDLT payable?
- Unfortunately, not. The new rules only apply to purchases completing on or after 8 July 2020 until 31 March 2021.
I exchanged contracts on 7 July but I am not completing until 1 November 2020
- Yes, you will be able to benefit from the reduction, as SDLT is triggered by substantial performance of a contract, which is usually taking possession of a property.
I am exchanging contracts for a new build purchase on 10 July 2020 but will not complete until 1 June 2021, will I benefit from the reduction in SDLT?
- No, as the purchase is not completing by 31 March 2021. What can be looked at is trigger substantial performance of the purchase by 31 March 2021. This may mean early payment of the SDLT but would secure the reduction currently available.
Turning to some examples
Main residence purchase on 7 July 2020 for £400,000 would have incurred SDLT of £10,000. Purchasing the same house during the SDLT holiday would mean no SDLT payable, a saving of £10,000.
A holiday home purchase which is liable to the 3% surcharge would have incurred SDLT of £22,000 if purchased on 7 July 2020, but during the SDLT holiday this reduces to £12,000, again a saving of £10,000.
Multiple Dwellings Relief
The SDLT holiday also applies to purchases where a claim for Multiple Dwellings Relief is being made. However care needs to be taken to see if a claim is still the right route as minimum 1% SDLT charge still applies if Multiple Dwellings Relief is claimed.
Mixed Use property
HMRC’s have been taking a keen interest in claims for ‘mixed use’ property (say a country house with only a modest area of field attached) as the SDLT payable with a claim for mixed use was often less than at the residential rates, particularly for purchases liable to the 3% surcharge. The benefits of securing mixed use may not be worthwhile if the purchase price is less than £1,215,000.
Wales – Land Transaction Tax (LTT)
For Wales stamp duty land tax was replaced by Land Transaction Tax (LTT) when certain tax raising powers were devolved in 2018. The current rates of LTT that apply in Wales are:
- Up to £250,000 – 0%
- £250,001 – £400,000 – 5%
- £400,001 – £750,000 – 7.5%
- £750,001 – £1.5m – 10%
- Over £1.5m – 12%
At the moment, in Wales a homebuyer will pay LTT of £17,450 on a house with a value of £500,000 compared to zero stamp duty land tax in England.
Scotland – Land and Buildings Transaction Tax (LBTT)
In Scotland, Land and Buildings Transaction Tax (LBTT) will be temporarily no longer payable on residential property valued at below £250,000, although it has not yet been announced on what date this will be introduced, which may cause some completions to stall in the short-term. The change only applies to purchases of main residences, not to any transaction where Additional Dwelling Supplement would apply (i.e. buy-to-lets, second homes, or purchases by limited companies or partnerships). The LBTT payable on transactions valued at £250,000 and above which qualify for the relief will be reduced by £2,100, with a smaller reduction for transactions between £145,000 and £250,000. Detailed legislation is yet to be made available to fully assess the nature of the changes, but the press release implies this will be the effect.
However, LBTT will now be £21,250 on a £500,000 transaction in Scotland compared to nil in England and Wales. The lower amount at which the tax continues to be raised in Scotland to some extent reflects lower property prices generally in Scotland compared to the South of England in particular.
We are here to help
For more information regarding how the proposed SDLT and other changes announced by the Chancellor in his Summer Statement may affect you and your business, please speak with your usual Baldwins contact. Please also refer to our update review of the Summer Economic Statement July 2020 for further information.
Further COVID-19 related information can be found on our insights page which is regularly updated with the latest news, insight and details of the economic support and measures as they are announced by our Government.