Sarah Bradford urges you to make the most of the higher stamp duty land tax threshold before it reverts back to £125,000 from 1st January 2010.
To give the property market a much-needed boost, the chancellor announced a stamp duty land tax `holiday’ on acquisitions of residential property costing no more than £175,000. The holiday period was originally due to run from 3 September 2008 to 2 September 2009. However, in his Budget speech on 22 April 2009, the Chancellor announced that the starting threshold would be increased to £175,000 until 31 December 2009. From 1 January 2010, the threshold will revert to £125,000.
The effect of these measures is that no stamp duty land tax is payable on the acquisition of residential property costing £175,000 or less where completion takes place in the period from 3 September 2008 to 31 December 2009 inclusive.
Time is Running Out!
The threshold reverts back to £125,000 from 1 January 2010. This means that to save stamp duty on residential property costing between £125,001 and £175,000, completion must take place on or before 31 December 2009. Missing this deadline can be costly as this example shows,
Example
Julian buys a residential property for £160,000 which he intends to let out. The purchase completes on 28 December 2009. As the consideration is less than £175,000 and completion takes place before 31 January 2010, no stamp duty land tax is payable.
Rachel also buys a residential property which costs £160,000 and which she plans to let out. The purchase is delayed as a result of a break in the chain and completion finally takes place on 15 January 2010. From 1 January 2010, the stamp duty land threshold is £125,000. Where the purchase price is more than £125,000 but not more than £250,000, stamp duty land tax is payable at a rate of 1%. Rachel must pay stamp duty land tax of £1,600 on her purchase.
Land and Property
The charge to stamp duty land tax applies only to the purchase of land or property in the UK. It does not apply to items such as carpets, curtains and moveable furniture. To avoid paying too much stamp duty it is necessary to correctly identify the elements included within the sale and to ensure that stamp duty land tax is only payable on the land and buildings element. This can be particularly useful where the purchase price is just above a threshold and agreeing to separate consideration for these items may keep all parties happy and allow the purchasers to save stamp duty in the process.
Example
George is interested in buying a house that is on the market for £185,000. He makes an offer of £175,000, which is rejected. The vendors do not want to accept less than £180,000.
The vendors agree to include the carpets, curtains and dining room furniture in the sale. They agree a price of £174,000 for the house and £6,000 for the furnishings. The sale completes on 1 November 2009. As the cost of the land and buildings is below the £175,000 threshold, George pays no stamp duty.
Conclusions
The raised stamp duty land tax threshold offers the option to purchase properties between £125,000 and £175,000 free of stamp duty land tax provided the sale completes before 1 January 2010. Where the price slightly exceeds the threshold and the vendor will not accept a lower offer, agreeing a separate price for carpets, curtains and freestanding furniture may allow the purchaser to save stamp duty land tax by bringing the land and buildings element of the consideration under the £175,000 ceiling.
Sarah Bradford
