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The Chancellor of the Exchequer – Rishi Sunak – announced a stamp duty ‘holiday’ bringing the 0% threshold up from £125,000 to £500,000 for purchases of residential property until 31st March 2020. This is welcome news for the property market and is expected to stimulate activity to reverse, or at the least, minimise the lethargic property market caused by Covid-19 and lockdown measures.
Perhaps more surprisingly, these changes were announced with immediate effect. This, alongside a package promoting the construction industry, will no doubt have a positive impact on the housing market.
For those purchasing residential property, raising the 0% threshold to £500,000 will mean there is no stamp duty land tax to pay on purchases falling within this threshold representing a saving of up to £15,000 for property purchases at the top end.
However, those purchasing an additional residential property and acquisitions by companies will still be subject to a 3% surcharge paying £15,000 for acquisitions of residential property up to £500,000. However, this still represents a saving of £15,000 against what would have previously been a liability of £30,000.
Individuals and couples may wish to consider bringing forward plans to move home to secure a lower stamp duty land tax charge. However, the easing of lockdown restrictions resulted in a spike in viewings and enquiries due to the backlog of prospective purchasers. The new measures with their limited time-frame will no doubt see a second spike in the number of prospective viewings and formal offers.
If you purchase a new residential property before selling your previous residence, then you will be subject to the 3% surcharge. However, this can be recovered if your old residence is sold within three years – alternatively, one could structure a disposal (i.e. transferring to a company) and bring forward the recovery of the 3% surcharge.
There could be some additional planning opportunities if the old residence is intended to be let and provide a rental income.
Multiple dwellings relief allows one to effectively treat a single transaction as several lower value transactions in calculating the SDLT position. This means that the purchase price is split between the properties and SDLT is paid at the lower thresholds for each ‘dwelling’.
Multiple dwellings relief can apply if a purchase involves more than one ‘dwelling’ – this could include:
The relief can be highly attractive often resulting in savings in the tens and hundreds of thousands – the recent changes enhance the savings and can potentially result in a negligible amount of stamp duty land tax being payable on relatively high-value transactions.
For instance, if an individual purchases a property worth £1,000,000 which also contains a lower-floor self-contained flat, the ordinary liability before the recent change would have been £43,750. If a claim for multiple dwellings relief is made, this would reduce the liability to £20,000 – a saving of £23,750.
After the recent changes, the liability with a claim for multiple dwellings relief would be £10,000. Although, each element (the main house and the lower flat) of the property would be within the £500,000 threshold, multiple dwellings relief imposes a minimum liability of 1%.
In any event, a potential saving of up to £33,750 remains an attractive reward for making a claim.
Many investors and developers are seeking to move their portfolio’s and projects into a limited company. In particular, the restriction of mortgage interest relief for buy-to-let landlords have seen an increase in popularity to continue the business via a company structure.
However, this is treated as a purchase by the company and would crystallise a stamp duty land tax charge without any sales proceeds to meet the cost.
In some cases, investors and developers may be willing to suffer the immediate stamp duty land tax cost to achieve the longer-term benefits of operating in a company.
However, the recent changes could enable one to reduce the stamp duty land tax burden to an effective rate of 3% where the average value of the properties are within the £500,000 threshold.
With the ‘holiday’ ending on 31st March 2021, investors and developers who are considering moving into a company structure should take steps now to determine the advantages of doing so before the 31st March 2021.
With the chancellor refusing to comment on whether there will be future tax increases to bolster the public purse, we could see an increase in income taxes, capital gains tax and potentially even stamp duty land tax and failing to act now could result in longer-term adversary for landlords, investors and developers.
How can ETC Tax help?
At ETC Tax we are well versed in all matters relating to stamp duty land tax and taxation of property in general. Whilst this recent announcement has come somewhat of a surprise, we have already been able to provide a number of clients with advice through which to maximise benefits.
If you or one of your clients is currently in the process of purchasing a property, please feel free to get in touch to discuss how we may assist in ensuring that you pay the right amount of tax.