SDLT: Contractors, do you qualify for a break once the holiday ends?

Since July 8th 2020, there has been an ‘Stamp Duty Land Tax Holiday,’ during which the first £500,000 of consideration on most residential property purchases in England and Northern Ireland has been free of SDLT.

All good things…

This holiday is coming to an end on June 30th 2021, giving rise to the question of whether there is anything contractors and other property-purchasers can do, to beat the inevitable post-holiday blues, writes Andrew Constable, tax partner at Moore Kingston Smith.

Fortunately, there is indeed a possible (tax) break or two to get over the holiday ending.

Before I explore these, be aware that right now many solicitors are working incredibly hard to ensure that wherever possible, house purchases can still complete before the June 30th cut-off. But increasingly so, time is running out and many transactions despite being processed currently are simply not going to go through before the SDLT holiday comes to an end.

The new SDLT limits

From July 1st 2021, the top limit of the SDLT nil rate band will fall to £250,000, with the result that most house purchases of £500,000 or more will come with an SDLT bill that is £12,500 higher than it would have been in June. Subsequently, from October 1st, the limit will fall to £125,000, meaning a further £2,500 of SDLT will be charged.

As many contractors will know, the SDLT holiday has been of benefit for many house-buyers over the past 11 months. It has benefitted equally those paying SDLT at the standard residential rates, and those subject to the 3% surcharge that applies to companies and to individuals buying ‘additional’ homes.

The holiday may well have played a large part in keeping the housing market buoyant throughout the coronavirus pandemic. But now that it is coming to an end, those who are too late to take advantage of it will be particularly keen to ensure they are not paying any more SDLT than they absolutely need to.

First Time Buyers Relief

So some purchasers should be aware of First Time Buyers Relief, which was introduced in November 2017 for qualifying buyers paying up to £500,000 for a house. Under this relief, no SDLT is payable on the first £300,000 of the purchase price. Any amount in excess of £300,000 then attracts SDLT at the standard rate of 5%.

The key requirements for this relief to be available are that the buyer is an individual who intends to occupy the house as their only or main residence, and that they have never previously acquired a major interest in a dwelling anywhere in the world. Where there are joint-buyers, the relief can only apply where all buyers meet the relevant conditions.

During the SDLT holiday, individuals that could have qualified for this relief would not under the standard rules have paid any SDLT on a purchase of up to £500,000, and so the relief has simply not been relevant. When the nil rate band limit falls to £250,000 on July 1st however, First Time Buyers Relief will again be relevant, giving a maximum potential saving of £2,500. From October 1st, the maximum potential saving will increase to a significant £5,000.

Those who are not eligible for First Time Buyers Relief, or who are perhaps buying property through companies, should be aware of a couple of other elements of the SDLT regime.

Historically, the SDLT charged on residential property purchases has generally been higher than that charged on non-residential or mixed purchases. During the SDLT holiday there have been more exceptions to this rule than usual, but it will now become the standard position once more. Identifying the existence of non-residential land in a transaction – for example land that does not form part of the garden or grounds of a house – could therefore result in an SDLT saving.

Multiple Dwellings Relief

Another element of the SDLT legislation that might be relevant to some buyers is Multiple Dwellings Relief. Where a number of dwellings are bought as part of the same transaction, the default position is that the residential rates of SDLT will be applied to the whole of the purchase price.

Where Multiple Dwellings Relief is claimed, however, SDLT is calculated on the average purchase price of each dwelling, with the result then being multiplied by the number of dwellings. This means the purchaser can make use of multiple lower-rate SDLT bands, and this may become more important as the size of the nil rate band reduces.

Final thought

While the SDLT rules are undoubtedly complicated (making tailored advice from a specialist tax or mortgage professional a must), they do contain within them some provisions which may mean that for some, the end of the SDLT holiday might not be quite as costly as expected.