In England, Wales and Northern Ireland, land and property transfers attract Stamp Duty Land Tax (SDLT) over a certain SDLT threshold which is set discretely for residential and non-residential properties. SDLT no longer applies in Scotland. Instead a separate tax is payable called Land and Buildings Transaction Tax .
SDLT on residential properties
Further from 1 April 2016 an additional 3% Stamp Duty Land Tax (SDLT) applied when individuals and companies purchase an additional residential property. The higher rates apply even if the other residential properties are outside of England, Wales and Northern Ireland.
SDLT is a ‘stepped’ tax, meaning it is charged on the portion of the cost of a property that falls into various bands.
Band Normal SDLT rates Additional residential property rates
£0 – £125k 0% 3%
£125k – £250k 2% 5%
£250k – £925k 5% 8%
£925k – £1.5m 10% 13%
£1.5m plus 12% 15%
Transactions under £40,000 do not require a tax return to be filed with HMRC and are not subject to the higher rates. HMRC SDLT calculator is built in to take into account the amount of stamp duty payable on additional residential property.
SDLT on non-residential properties
SDLT is payable on increasing portions of the property price (or ‘consideration’) when you pay £150,000 or more for non-residential or mixed-use land or property. You must still send an SDLT return for most transactions under £150,000.
Non-residential property includes commercial properties, agricultural land, forests and six or more residential properties bought in a single transaction.
A ‘mixed use’ property is one that has both residential and non-residential elements, eg a flat connected to a shop.
Band SDLT rates
£0 – £150k 0%
£150k – £250k 2%
£250k plus 5%
SDLT reliefs and exemptions
There are certain Stamp Duty Land Tax (SDLT) reliefs available if you’re buying your first home and in certain other situations. These reliefs help to reduce the amount of tax payable. SDLT return must be completed irrespective of whether tax is payable or not. A full list of reliefs and HMRC guidance is available here.
In additions to SDLT reliefs, there are following exemptions available where buyers do not have to pay SDLT or file a return if:
- no money or other payment changes hands for a land or property transfer
- property is left to you in a will
- property is transferred because of divorce or dissolution of a civil partnership
- you buy a freehold property for less than £40,000
- you buy a new or assigned lease of seven years or more, as long as the premium is less than £40,000 and the annual rent is less than £1,000
- you buy a new or assigned lease of less than seven years, as long as the amount you pay is less than the residential or non-residential SDLT threshold
- you use alternative property financial arrangements, eg to comply with Sharia law.
Relief on multiple dwellings transaction
Where two or more dwellings are purchased in a single or linked transaction multiple dwellings relief (FA2003/Schedule 6B) can be claimed. This relief allows the buyer to apply SDLT to the mean value of the purchased dwellings, as opposed to paying the SDLT on the actual value of each dwelling.
For the purposes of the relief a ‘dwelling’ means a building or part of a building which is suitable for use as a single dwelling or is in the process of being constructed or adapted for such use. SDLTM29955
Property investors who wish to invest in multiple properties may be able to limit their property tax bill due to the relief available.
Relevant transactions FA03/SCH6B/PARA2
- a transaction, the main subject-matter of which includes interests in more than one dwelling, or
- a transaction which is one of a number of linked transactions, the main subject-matter of which includes interests in at least one dwelling and where one or more transactions linked to it includes interests in at least one other dwelling.
In either case, the main subject-matter of the transaction may include interests in land other than dwellings. When this relief is claimed, in order to work out the rate of tax HMRC charges:
- divide the total amount paid for the properties by the number of dwellings
- work out the tax due on this figure
- multiply this amount of tax by the number of dwellings.
The minimum rate of tax under the relief is 1% of the amount paid for the dwellings, so care is required if considering ‘bulk purchases’ which include one or more properties individually worth £125,000 or less. Additionally investors may decide to buy more than one property in a single transaction if value of the one property is comparatively low to the other one to average it out and pay the lower rate of tax on full consideration.
Paul is purchasing three flats at a significant discounted price of £200,000 each and a house of £400,000, totalling £1,000,000.
SDLT of £73,750 would be payable on the full consideration by Paul without claiming Multiple Dwellings Relief. But if Paul claims the relief, he would have to pay only £40,000 (4 x (SDLT on (1,000,000 / 4)) SDLT – thereby saving him £33,750 in SDLT.
SDLT options for transactions involving six or more dwellings
Where six or more dwellings are purchased in a single transaction the purchaser can choose to apply:
- the non-residential rates of SDLT; or
- claim multiple dwellings relief and pay the higher rates.
A company purchases a block of 10 flats for £1,200,000.
- Applying multiple dwellings relief the SDLT due would be £36,000.
(Average price of £120,000 x 3% x 10).
- Applying the non-residential rates the SDLT due would be £49,500
£150,000 x 0% = 0.00; plus
£100,000 x 2% = £2,000.00; plus
£950,000 x 5%= £47,500.00
- The purchaser can choose to apply the non-residential rates or make a claim for multiple dwellings relief.
Filing a return and making a payment
A return must be filed and payment made within 30 days of the effective date of the transaction, as with other types of SDLT purchases.To file a return for the higher rates the main purchaser or agent acting on their behalf will need to complete a SDLT1 return, the same return as required for other types of SDLT purchases. If the transaction is subject to the higher rates then question 1 on the form, on ‘type of property’, needs to be completed as code 04.
To claim Multiple Dwellings Relief, code ‘33’ needs to be entered in the SDLT return; otherwise standard SDLT rates will be applied.
Article from ACCA In Practice