On 23 September, Chancellor Kwasi Kwarteng made several headline -grabbing tax announcements. Among them was a permanent cut to Stamp Duty Land Tax (SDLT), meaning many buyers will pay no tax on the first £250,000.00 of their residential property price. It is worth noting that no tax changes were announced in relation to commercial property and the incremental rate band method of  calculating SDLT, which replaced the old “slab” method  in March 2016, remains in place.

Here, SDLT specialist Fiona Phillips, partner with Andrew Jackson Solicitors LLP,  considers what the changes mean in practice.

From 23 September 2022, the nil rate band for residential purchases increased from £125,000 to £250,000; for first time buyers, the nil rate band has increased from £300,00 to £425,000 on properties costing up to £625,000, up from £500,000.

Whilst this is good news for purchasers, SDLT is a complex tax and, as the examples below show, the new residential nil rate bands may not always be available.

No nil rate band on purchase on main residence

Client A is selling his residential property (which only he lived in)  and buying a home to live in with B, his new civil partner, for £550,000. He has no other properties. For financial reasons Client A is to be the sole purchaser of the property. It would appear that the nil rate band of £250,000 is available on this purchase, giving a total SDLT charge of £15,000. However, B previously lived in a flat which he owns in his sole name and intends to rent out. He did not live in the property that A is now selling.

As B has a property which he is not disposing of, if he were the purchaser of the new property, he would be liable to the additional property rate of 3% instead of the nil rate. As it applies to him, it also applies to A as they are civil partners. The SDLT due will be £31,500.

Inheritance loses first time buyer relief

Client C unexpectedly inherited a small cottage worth £75,000 some years ago from a distant relative. The client had no intention of living in the property or keeping it long term, and it took some years to sell. Following the sale of the cottage, Client C is buying his first property to live in, at a cost of £350,000.

First Time Buyers’ relief applies to the first £425,000 of the purchase price of a dwelling costing up to £600,000, such that no SDLT is payable on the first £425,000 of consideration.

Unfortunately, Client C’s inheritance means he is not classed as a first time buyer (although this is the first time he has actually bought a property) and instead of his SDLT bill being nil, it is £5,000.

Mixed use properties

Client D is buying a building comprising a shop unit on the ground floor and a flat on the floor above. She is going to live in the flat and run her business from the shop. The total purchase price is £700,000; she estimates the value of the flat is £249,000. D had been told that the residential element will be within the new higher rate band and so her SDLT bill will be substantially reduced.

However, D has been incorrectly advised. The SDLT rules state that any single transaction (or a series of  linked transactions) that consists of both residential and non-residential properties (called mixed use properties) is charged at the non-residential SDLT rates. The nil rate band on mixed use is only £150,000 – substantially less than that for purely residential properties.  The SDLT on this purchase would be £24,500.

As the above scenarios illustrate, SDLT is a complex area and professional advice should always be sought, particularly in light of the recent changes.

Our friendly team is here to provide support and advice across a range of matters including SDLT, so please do not hesitate to get in touch on (01482) 325242 or by emailing Fiona Phillips at fiona.phillips@andrewjackson.co.uk.