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Property Boom | Your guide to Stamp Duty Land Tax

Commercial Property Moving House

Currently, thanks in part to the Stamp Duty “holiday”, residential properties across the nation are selling at the fastest pace ever recorded and house prices also hit record highs in March. Locally there is no exception to the property boom, with Rightmove reporting sold prices in Peterborough up 5% on the previous year and Rutland 13% up on the previous year.

Stamp Duty Land Tax

Stamp Duty Land Tax (SDLT) is a tax paid by the buyer to H M Revenue & Customs (HMRC) on the purchase of a UK residential property. In 2020, the Government raised the SDLT threshold (the starting point from which SDLT liability may apply) to £500,000 for residential property purchases in England and Northern Ireland. This threshold applies until 30 June 2021 after which it will lower to £250,000 until 30 September 2021 and then, from 1 October 2021, it has been indicated that the threshold will revert to £125,000.

However, although the reduction in SDLT liabilities has helped some house buyers, those adding to their property portfolio and/or who live abroad for part of the year should be aware of the latest SDLT changes introduced on 1st April.

Rebecca Walton, a solicitor at Hegarty Solicitors, one of a team specialising in commercial property and complex residential property transactions, discusses the latest changes.

New rules for non-UK residents

You must have lived in the UK for a minimum of 183 days in the 365 days immediately preceding a purchase (not necessarily consecutive days) to qualify as a UK resident.  If you have not, you will not qualify and will be deemed a non-UK resident for the purposes of SDLT liability. From 1st April 2021, non-UK residents purchasing residential properties will be subject to a further 2% surcharge when calculating SDLT.

For individuals purchasing with others, the surcharge also applies when any one of those individuals is a non-UK resident. There are, however, some reliefs, e.g. if the non-UK resident moves to the UK to live within a year of completion, an application can be lodged at HMRC for a refund of the surcharge within 2 years of completion (N.B. to qualify for this refund other conditions must be satisfied).

For companies, the additional surcharge will apply where one or more of the controlling owners is a non-UK resident on the completion date or, the company is not incorporated in the UK. The rules are more complex for companies and they are likely to require specific tailored advice.

Purchasing an ‘additional’ property

A 3% surcharge is payable by all individuals who purchase a residential property which will not replace their main residence. This 3% surcharge is added to all the usual rates of SDLT duty, and therefore applies to the rates applicable during the SDLT holiday transition period.

The 3% surcharge can be reclaimed where the property is to replace the individual’s main residence if the reclaim is made within the first 36 months of completion of the purchase of the property (N.B. once again, to qualify for this refund other conditions must be satisfied).

How does SDLT apply when purchasing multiple properties?

Where six or more properties are being purchased in one transaction, the buyer can opt to pay either the non-residential rates or, opt to pay the higher rates and utilise Multiple Dwellings Relief (MDR). MDR may also be applied when purchasing a property with an annex – (certain conditions must be satisfied to qualify for this relief).

Where two or more property transactions are between the same seller and buyer, they are classified as “linked transactions” and SDLT liability is calculated on the total value of all of these linked transactions.   Connected persons within the transaction also form the link.

There is no limit to the length of time that transactions are classed as linked, for example purchase one house now from a developer and ten years later you buy a second or, a parent buys a house, and their child buys the garden separately.  These are still classed as linked transactions for SDLT purposes.  In these cases, the total value of the transactions are added together and the difference in SDLT from the previous transaction must be paid.  It may be possible to claim the MDR as a result of purchasing more than one property.

If all properties are residential, then the residential rates apply but if any or all properties are non-residential then the commercial rates apply.  There may also be the higher rate surcharge of 3% that is applicable.

The SDLT rules and calculations can be complex and each transaction must be considered based on the facts specific to each purchase. Hegarty Solicitors are able to advise and guide on the SDLT legislation and calculations relevant to your particular transaction and, subject to instructions, act as your agent in remitting the SDLT return and the liability to HMRC on your behalf.

When do higher rates of Stamp Duty Land Tax apply?

The higher rates apply when you buy a residential property for £40,000 or more and if all of the following apply:

  • You own another residential property of £40,000 or more anywhere in the world.
  • You still own your main residence.
  • No one else has a lease on it with over 21 years to run.

If you are married or in a civil partnership and your spouse or civil partner owns another property over £40,000, whether in England or Wales or abroad, then the higher rate applies.

There are various other situations where the higher rate applies, for example, residential purchases by corporate bodies. Stamp duty land tax is charged at 15% over £500,000 when purchased by a company, partnership or collective investment scheme, but there are exceptions to this rule which include acting as a trustee of a settlement or a company using the property for:

  • A property rental business.
  • Property developers and traders.
  • Properties made available to the public.
  • Financial institutions acquiring the property in the course of lending.
  • Property occupied by employees.

These are all subject to specific conditions and the 3% surcharge does apply throughout.

If you require further advice regarding SDLT, please contact Hegarty Solicitors Commercial Property team at propertycommercial@hegarty.co.uk, call 01733 346 333 or make an enquiry online.

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