Stamp Duty Land Tax (‘SDLT’) is often something of an afterthought when considering a purchase, but the reality is that it can add a large cost to buying a house. SDLT applies to purchases of residential properties over a certain price in England and Northern Ireland. The rate of tax due increases at various incremental property values.
CASE STUDY
Ryecroft Glenton recently gave advice to a client who was planning to purchase a residential property on the south coast of England for around £270,000. The timing of the client’s plans to enter into a civil partnership and also to move overseas had to be considered as they could significantly increase the SDLT charge. Whilst the specific fact pattern was slightly unusual, in that all three dates were fairly flexible, it does provide a useful case study for highlighting the factors that affect the rate of tax and the importance of timing when considering SDLT planning.
STANDARD SDLT RATES
SDLT applies at the following standards rates for an individual purchasing a residential property:
The first £250,000 is taxed at 0%
The next £675,000 (up to £925,000) is taxed at 5%
The next £575,000 (up to £1.5M) is taxed at 10%
The remaining amount in excess is taxed at 12%
Our client was UK resident, unmarried and they did not own any other residential property. They had an intention to purchase a property for £270,000. Therefore, their SDLT liability would have been:
£250,000 @ 0% £0
£20,000 @ 5% £1,000
TOTAL £1,000
ADDITIONAL PROPERTIES
A 3% surcharge applies to purchases of residential property where individuals already own residential property (also see below re: replacing a main residence). For spouses or civil partners, SDLT rules apply as if they are purchasing a property together, even if they are not.
Our client was planning to enter into a civil partnership with an individual who already owns residential property in the UK. Purchasing the property after registering a civil partnership would expose our client to a 3% SDLT surcharge, meaning their SDLT liability would have been:
£250,000 @ 3% £7,500
£20,000 @ 8% £1,600
TOTAL £9,100
NON-UK RESDIENTS
There is a 2% surcharge on residential properties in England and Northern Ireland bought by non-UK residents. The surcharge applies on top of all other residential rates of SDLT, including the higher rates for additional dwellings.
Our client was considering moving to Portugal; if they purchased the property after registering a civil partnership and after becoming non-UK resident, their SDLT liability would have been:
£250,000 @ 5% £12,500
£20,000 @ 10% £2,000
TOTAL £14,500
SUMMARY OF CASE STUDY
The timings of the purchase, the civil partnership and relocating abroad were shown to be very important. Leaving the purchase of a £270,000 UK property until after the other two events would increase the SDLT charge to £14,500, compared to a charge of £1,000 if they purchased the property before the other two events.
OTHER SDLT RATES
There are two other common situations to consider when commenting on SDLT charges.
Buying your first home:
A discounted SDLT rate applies if the property you buy is your first home and the cost is not more than £625,000. This means you’ll pay:
- no SDLT up to £425,000
- 5% SDLT on the portion from £425,001 to £625,000
If the price is over £625,000, you cannot claim the relief. Follow the rules for people who’ve bought a home before.
Replacing your main residence:
You will not pay the extra 3% SDLT if the property you’re buying is replacing your main residence and that has already been sold.
If you have not sold your main residence by the day you complete your new purchase, you’ll have to pay higher rates. However, you can apply for a refund if you sell your previous main home within 36 months.
SUMMARY
Understanding your exposure to SDLT is an essential part of planning a property purchase. Although the timing of a marriage or a civil partnership may not be a commonplace planning step for many people, timing the sale and purchase of other properties is a point that many individuals can plan around. Notable tax efficiencies can be achieved by getting the timing right.