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The holiday’s over: what now for Stamp Duty Land Tax?

From 1 October 2021, Stamp Duty Land Tax charged on residential properties returned to the rates, which were in force prior to the SDLT holiday introduced by the Chancellor of the Exchequer  on 8 July  2020.

Whilst many buyers raced to benefit from the temporary nil rate band of £500,000, heightened demand has resulted in many purchasers missing out on the tax break, which has saved buyers up to £15,000.

However, mistiming a property purchase is not the only cause of a higher SDLT liability than otherwise expected; there are other traps that could catch  the unwary, as the following scenarios show.

Inheritance loses first time buyer relief

Client A 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 A wanted to buy his first property to live in, at a cost of £250,000.

First Time Buyers’ relief applies to the first £300,000 of the purchase price of a dwelling costing up to £500,000, such that no SDLT is payable on the first £300,000 of consideration.

Unfortunately Client A’s inheritance means they are not classed as a first time buyer (although this is the first time they will have actually bought a property) and instead of their SDLT bill being nil, taking advantage of First Time Buyers’ Relief, it is £2,500.

Bank of Mum and Dad increases SDLT by 3%

Client B wants to sell their current family home and move to a house in the catchment area of a school they would like their children to attend.

The new house exceeds what Client B can currently afford at £750,000, but their parents have offered to pay some of the increased mortgage. The mortgage provider has insisted that Client B’s parents’ names appear on the mortgage, making them joint purchasers.

Client B has no other properties, and their parents’ only property is their own home.

Although Client B will not not own any properties other than their main residence, the 3% surcharge on additional properties will apply to this transaction. This is because Client B’s home is being jointly purchased by their parents for whom it is an additional property. Instead of Client B’s SDLT being £27,500 it will be £50,000 (which includes the 3% surcharge).

A gift at a cost….

Client C has recently moved into the house, which their civil partner, D, has owned for some years. D wants to transfer the property into their joint names and despite the property having  gone up in value considerably since D bought it, he doesn’t want Client C to pay anything for their share. However, Client C insists that they take on the outstanding mortgage of £300,000.

D and Client C assume that as no money is changing hands, no SDLT will be due. However SDLT will be chargeable as Client C is assuming D’s debt. Client C is getting a half share in the house and so the SDLT is due based on half of the outstanding debt – £150,000, meaning the SDLT will be £500.00.

Overseas surcharge

Clients E and F are selling their home in London and relocating to Yorkshire. They don’t have any other properties, and the new property in Yorkshire is being bought for £900,000. They assume that the normal rates of SDLT will apply, giving them a liability for SDLT of £35,000. Clients E and F are not married nor in a civil partnership.

Although Client E is a UK national, they are currently working abroad and this will be the case for the next three years. They come home for holidays, but  are away for most of the year.

For SDLT purposes Client E is treated as a non-UK resident, and as they and Client F are not married or in a civil partnership the non-resident surcharge of 2% applies to the purchase. The SDLT will therefore be £53,000.

As the above scenarios illustrate, SDLT is a complex area and professional advice should always be sought.

 

For help and advice on SDLT, please get in touch with Fiona Phillips at fiona.phillips@andrewjackson.co.uk

Our friendly team is here to provide support and advice for all legal matters affecting you or your business, so please don’t hesitate to get in touch with us on 01482 325242 or by emailing  enquiries@andrewjackson.co.uk

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