Key points:
- SDLT is payable on the purchase or transfer of land and property in the UK.
- The amount of the tax depends on the type of property and the value of the transaction.
- Some transactions are exempt and reliefs are available in particular circumstances.
- Stamp duty land tax (SDLT) can add a considerable cost to the purchase of a property, particularly in London and the South East where property prices are high. SDLT is payable on the purchase or transfer of land or property in the UK where the amount paid exceeds a certain threshold. The tax is normally a percentage of the purchase price, unless a relief or exemption is available. The rate of SDLT depends on the type of property and the value of the transaction.
For residential properties, no SDLT is payable on properties sold for less than £125,000. Thereafter, the rate depends on the value of the transaction, ranging from 1% for properties between £125,000 and £250,000 to 7% on properties over £2 million. A higher rate of 15% applies to properties over £2 million purchased by certain ‘non-natural’ persons including body corporates.
Reliefs
There are a range of reliefs that reduce the amount of SDLT payable in particular circumstances. Reliefs are claimed on the SDLT return and it is necessary to complete a return, even if no SDLT is due. The main reliefs are described briefly below.
- Disadvantaged area relief was available in respect of the purchase of a residential property prior to 6 April 2013 that was located in an area designated by the Government as a disadvantaged area. A higher SDLT threshold of £150,000 applied to properties in a disadvantaged area, rather than the normal threshold of £125,000. All claims to disadvantaged area relief must be made on or before 5 May 2014.
- Multiple dwellings relief is available where a transaction or number of linked transactions includes freehold or leasehold interests in more than one dwelling. Where the relief applies, the rate of SDLT charged is the rate that would apply to a property with a value equal to the total amount paid for the dwellings divided by the number of dwellings. The relief is available where the effective date of the transaction is on or after 19 July 2011 and is claimed by entering code 31 on the SDLT return.
Example - An SDLT saving
Bill buys five flats from a developer to extend his buy-to-let portfolio. The total consideration for the five flats in £1.25 million. He pays stamp duty at the rate applicable to a property costing £250,000 (£1.25 million divided by 5), i.e. 3%, rather than at the rate applicable by reference to the total consideration of £1.25 million, i.e. 5%. The total SDLT payable is therefore £37,500 rather than £62,500.
Tip: when purchasing multiple properties in a single transaction, don’t forget to claim multiple dwellings relief.
- Part-exchange: Many developers offer purchasers the opportunity to part-exchange their existing house for a new property. This provides the developer with a sale and saves the purchaser from the stress and uncertainty associated with selling his or her existing home. In a part-exchange situation, the purchase of the house by the house builder or property trader is exempt from SDLT as long as the person entering into the part exchange has lived in the property offered in part exchange as his or her only or main residence at some point in the two years prior to the part-exchange, and they buy a new home from the house building company that they intend to live in as their only or main residence. The relief applies to land taken in exchange with the house up to a limit of 0.5 hectares. However, it does not apply to individuals who swap houses. The relief is claimed by entering code 08 on the SDLT return.
- Employer relocation – to help employees with job-related moves, an employer may buy an employee’s old home to facilitate a job-related move. SDLT is not payable on the purchase of the employee’s home by the employer as long as the employee has lived in the property as his or her only or main residence in the two years prior to the purchase by the employer, the employer is buying the property because the employee is obliged to move because of a job move, the employer does not pay more than the market value of the property, and the land purchased with the property is not more than 0.5 hectares. The relief also applies if the property is purchased by a property trader in the same circumstances. The relief is claimed by entering the code 09 on the SDLT return.
- `Chain breaking’ purchases are purchases made by a property trader to enable an individual to complete the purchase of a home where the existing chain has broken and the original sale of the individual’s home has fallen through. No SDLT is payable on the `chain breaking’ purchase by the property trader as long as the individual lived in the property as his only or main residence at some point in the preceding two years, the property trader is buying the property to enable the purchase of the new home to proceed, the individual intends to occupy the new property as his only or main residence, and the land purchased with the property is not more than 0.5 hectares. The property trader claims the relief by entering the code 09 on the SDLT return.
- Compulsory purchase – a local authority may agree to make a compulsory purchase order on a property to enable another development to proceed. In this situation there are two linked sales – the individual sells the property to the local authority, and the local authority sells the property on to the developer. As there are two purchases, without relief there would be SDLT to pay on each. However, as long as the development is being carried out by the property developer, the local authority is entitled to SDLT relief on the purchase from the individual. The relief is available to any body that has legal authority to compulsorily purchase a property and is claimed by entering code 10 on the SDLT return.
- Planning obligations – as a condition for planning obligations being granted a property developer may be required to provide amenities for the community, such as sports facilities or a school. The building is often transferred to the local authority once complete. However, the developer may initially have to buy the land from its original owner. To prevent successive SDLT charges from arising, relief from SDLT is available in respect of the purchase of the land.
- Transfer between group companies – relief from SDLT is available when a property is transferred to another company in the same group as long as certain conditions are met.
- Charities benefit from SDLT relief on land and property that they buy for charitable purposes.
- ‘Right to buy’ transactions qualify for SDLT relief. This is either the sale of a dwelling at a discount from a public body such as a local authority (such as the right to buy a council house) or the sale of a dwelling where there is a preserved right to buy. SDLT is calculated on the discounted price paid by the purchaser without taking account of any additional payments that may become due, for example, if the property is sold before a required period has elapsed. The relief is claimed by entering code 22 on the SDLT return.
- Social landlords are eligible for SDLT relief in certain circumstances. The relief is claimed by entering code 23 on the SDLT box.
Exemptions
Certain transactions are exempt from SDLT and do not require a SDLT return. These include property left in a will and property and land split between former spouses and civil partners on divorce, separation or the dissolution of a civil partnership. No SDLT is generally due (or return required) where a property changes hands for no money, nor is a return required if the consideration is less than £40,000. However, although no SDLT is due if the consideration is less than the SDLT threshold (currently £125,000), a return is still required if the consideration is more than £40,000.
Practical Tip:
Don’t overlook SDLT reliefs and exemptions as the savings can be significant. Remember to complete a SDLT return to claim the relief where a relief is due, even if no SDLT is payable.
