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Stamp Duty Land Tax (SDLT) is a tax that is payable on the purchase or transfer of land and property in England and Northern Ireland. It is also payable in respect of certain lease premiums.
SDLT is usually chargeable by reference to the cash value of the transaction. However, the definition of ‘consideration’ is very wide and is intended to catch all sorts of situations where value might be given other than in cash.
For example, if the purchaser agrees to do certain work on the property or to take on the mortgage debt secured on a property. The SDLT rates are applied on a graduated basis, like Income Tax.
A higher rate of SDLT was introduced in April 2016 and applies to purchases of additional residential property such as buy to let and second homes. The higher rate is 3% higher than the current SDLT rates and applies to the purchase of additional residential properties valued at over £40,000. If you are buying a second home, you will usually have to pay the higher rate of SDLT. This applies to purchases including a holiday home, a buy-to-let investment and for most other purposes.
The higher rates apply to purchases of additional residential properties in England and Northern Ireland. The higher rate does not apply to individuals who own only one residential property, irrespective of the intended use of the property. There are also some other limited reliefs from the surcharge such as when you are replacing your main home.
In Scotland, there is a 4% surcharge of the Scottish Land and Buildings Transaction Tax (SLBTT) if an individual buys a second or subsequent residential property costing more than £40,000. In Wales, there is a Welsh Land Transaction Tax (WLTT) higher rate supplement of 3% on purchases of additional residential properties costing £40,000 or more. The information below relates to SDLT in England and Northern Ireland and local advice should be sought if looking to purchase a second home in Scotland or Wales. However, across the UK the impact is the same and makes second home purchases more expensive.
A married couple is treated as one person and the higher rate applies to both parties as if they were buying the property together, even if that is not the case. If either party is liable to pay the higher rate, then the higher rate applies to the entire transaction, unless the couple is permanently separated. This means that if one spouse or civil partner owns a property already, then both parties will be liable to pay the higher rate on the purchase of a second home.
Presently, in England and Northern Ireland no standard rate SDLT is payable on residential property purchases on the first £500,000 for property completions between July 8, 2020 and March 31, 2021. The reduced rates of SDLT were introduced by the Chancellor in response to the coronavirus pandemic to help stimulate the property market. The tax-free allowance limit will revert to £125,000 from 1 April 2021. Purchasers buying a second residential property still have to pay the higher 3% rate of SDLT for all property purchases over £40,000. Homebuyers in Scotland and Wales can also take advantage of similar reliefs until 31 March 2021.
SDLT rates from 8 July 2020 to 31 March 2021
| Residential property value | Standard Rate | Higher Rate |
| £0 - £500,000 | 0% | 3% |
| £500,001 - £925,000 | 5% | 8% |
| £925,001 - £1,500,000 | 10% | 13% |
| Over £1,500,000 | 12% | 15% |
SDLT rates from 1 April 2021*
*These rates also apply if you bought a property before 8 July 2020.
| Residential property value | Standard Rate | Higher Rate |
| £0 - £125,000 | 0% | 3% |
| £125,001 - £250,000 | 2% | 5% |
| £250,001 - £925,000 | 5% | 8% |
| £925,001 - £1,500,000 | 10% | 13% |
| Over £1,500,000 | 12% | 15% |
Whilst the purchase of a second home would not remove all liability to SDLT, the temporary stamp duty holiday is beneficial. For example, someone buying a second home before 31 March 2021 for £500,000 will pay £15,000 in tax. If the same property was bought after the stamp duty holiday is over (from 1 April 2021) they would face a £30,000 tax bill. The transaction must be completed by 31 March 2021 to qualify for the reduced SDLT standard rates.
Avoid SDLT on Second Home
There are limited reliefs to avoid paying SDLT on a second home.
HMRC’s guidance lists the following scenarios where the higher rates do not apply:
- If you are transferring ownership (or part ownership) of a residential property to your spouse, the higher rates do not apply as long as no one else is involved in the transfer.
- If you want to increase the amount of a property that you already own, you do not have to pay the higher rates when all the following apply:
- you already own 25% or more;
- the dwelling has been your only or main home for the previous 3 years;
- if you’re extending a lease, your lease still has 21 years or more left to run.
Other Exemptions and Reliefs
You would also be exempt from SDLT on a second home if you are lucky enough to find a second home worth less than £40,000!
The 3% higher rate of stamp duty does not apply to “moveable” property, such as a caravan, houseboat or mobile home, or property where there is seven years or less left on the lease.
There is no SDLT on inherited properties. However, inherited property will be relevant when determining if a purchaser is purchasing an additional residential property or not.
If you act as a guarantor or help with the deposit on a new property, then you aren’t classed as joint owner. This can help avoid the higher rate if you are for example, helping your children buy their first home.
Divorce
There are also special rules that apply in the case of divorce. For example, in some cases, a divorcee may file for transfer of their marital home in court through the Property Placement Order. In this case, the divorcee handing over the home will not be subjected to the additional 3% stamp duty rate if they purchase a new home. The situation is more complex without a Property Placement Order but it may be possible to apply for a refund of SDLT.
Main Home
If you are buying a home that you intend to live in as your main home then the higher rate will not apply provided you have sold your existing home before you buy your new home (or on the same day).
However, if you have not yet sold your original main residence then you must pay the higher rate when buying a new home. If you sell or give away your previous main home within 3 years of buying your new home you can apply for a refund of the higher SDLT rate part of your Stamp Duty bill.
The 3 year period may be extended if exceptional circumstances apply. This includes being prevented from selling the property owing to government guidance during the coronavirus pandemic or due to action taken by a public authority.
Mixed-use Buildings
The 3% higher rate applied to the dwelling element of mixed-use buildings consisting of residential and non-residential properties after the rate was introduced in April 2016.
HMRC’s guidance on this issue was updated on 13 November 2020. The new guidance makes it clear that HMRC’s view has changed and that the 3% surcharge will not apply to the dwelling element. The guidance adds the caveat that the non-residential element of the transaction is neither negligible nor artificially contrived.
This change could allow affected purchasers to claim back any overpaid SDLT on mixed use, multiple dwelling transactions from HMRC within the legal time limits. Purchasers can also make a non-statutory clearance application in the event of uncertainty over a transaction.
If you have any questions about the issues raised in this article, we at Key Business Consultants can help. Get in touch with us today or call us directly on 02037 282 848.
