Discovering that you are being investigated by HMRC can be very stressful, even if you are...
What is stamp duty?
Stamp duty is a tax levied by governments or individual states for property and legal document transactions. Originally back in the 1600s when this method is thought to have begun in the main European trading countries, a physical stamp was embossed onto the document which denoted that the relevant taxes had been paid before the instrument was able to be used as legally effective.
Nowadays, thanks in part to the Office of Tax Simplification we no longer need a physical stamp for most of these transactions due to digitalisation and having to pay the relevant fees at the time of filing the documents or having to use solicitors who provide the same verification.
For the majority of owner-managed small and medium-sized businesses who still have to complete paper stock transfer forms when transferring shares between shareholders, they will be aware of the J30 form for fully paid shares and the J10 form for partly paid shares.
If the amount paid is over £1,000 then stamp duty reserve tax (SDRT) is payable online to the HMRC bank account and the form sent to the Birmingham office for stamping and returning via a self-addressed, stamp-paid envelope.
What are the current SDLT tax rules?
Residential land purchases
The current position for residential house purchases in England & Wales are as follows:
|up to £125,000||0%|
|from £125,001 to £250,000||2%|
|from £250,001 to £925,000||5%|
|from £925,001 to £1,500,000||10%|
This is excluding first-time buyers (see below) and second-home owners, who will pay an extra 3% over and above these percentages initiated from April 2016.
In Philip Hammond’s Budget 2017, he removed SDLT for first-time homebuyers in England and Wales when purchasing homes with a value up to £300,000. This was a saving up to £5,000. Also, if they spent up to £500,000 they will only pay SDLT at 5% on the amount in excess of £300,000. Those spending over £500,000 will pay full Stamp Duty.
The Government definition of first-time buyers is “... an individual(s) who have never owned an interest in any worldwide residential property and who intends to occupy this property as their main residence.”
Prior to 4 December 2014, SDLT operated on a slab basis which meant that the percentage rate in which the gross selling price fell into was the percentage of SDLT paid, which meant that buyers were not willing to pay just over the next percentage threshold.
From 1 April 2021, there will also be a two per cent surcharge on top of the above-mentioned rates for any non-UK residents buying homes in England and Northern Ireland. However, they may get a refund if they subsequently become UK residents.
What has been announced?
There was a lot of media attention as of 6 July 2020 about a potential press release by the Chancellor Rishi Sunak in the Autumn Budget 2020 due to be announced in October 2020 that he might raise the tax-free threshold from £125,000 to £500,000. This represents a maximum saving of £15,000 for properties costing over £500,000.
Some estate agents had lamented the timing of the briefing and the delay until the implementation of the changes, noting that they now expect all residential property sales which had picked up since the easing of the COVID-19 lockdown will most likely be deferred until after the Autumn Budget.
With so many national media outlets reporting on this story and previous government briefings given to the media from Boris Johnson’s team coming true, then it came as no surprise on Wednesday 8th June that Mr Sunak announced the immediate raising of the nil 0% tax band up to £500,000 until 31 March 2021.
Statistics say that this will exempt around 88% of all UK residential property sales from having to pay SDLT at all. London average selling price is £588,700 which means that London will, again, bear the burden of the majority of the tax base.
Thoughts on the proposals
With property prices known to have reduced for four months in a row, something had to be done at the national level to stop the slide. The overall total cost to UK taxpayers has not yet been quantified and so it is not known how this will impact on further government borrowing already exacerbated by recent tax giveaways.
It is not confirmed whether these changes will have the most positive impact on first-time buyers who are frequently struggling to get onto the property market or investing landlords themselves.
There is no mention about any tax relief for commercial properties, but it is generally understood that the majority of the larger commercial property landlords and tenants have stopped paying council tax throughout the lockdown period. Other losses to the exchequer will include many businesses going into liquidation and will not pay the accrued rates either.
Also mentioned in this mini-budget were other tax giveaways such as:
- VAT on non-alcoholic drinks, food, accommodation and attractions has been cut to 5% from 20%;
- An "eat out to help out" discount of 50pc off, up to £10 per head for all meals eaten at any participating business Monday to Wednesday in the month of August;
- A £1,000 grant paid to all businesses who bring back employees from furlough and keep them employed through to 31 January 2021 as long as they earn above £520/month on average;
- A Kickstart Scheme for 16-24-year-olds whose wages up to 25 hours per week and 100% of the national minimum wage will be paid by the Treasury;
- Funding for traineeships, apprenticeships and the National Careers Service; and
- A raft of Green initiatives