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SDLT applies to properties in England and Northern Ireland:

At a glance

From 1 April 2016 SDLT is charged at a higher rate on the purchase of:

  • An additional dwelling by an individual. 
  • A dwelling purchased by a company. 

For individuals, the higher rate applies to your purchase if at the end of the day you buy the property conditions A to D are all met:

Condition A: The chargeable consideration for the purchase is £40,000 or more.

Condition B: On the effective date of the transaction the property you are purchasing:
(a) is not subject to a lease, or
(b) is subject to such a lease but the lease has 21 years or less left to run on it.

Condition C: At the end of the day that is the effective date of the transaction:
(a) you have a major interest in another dwelling other than the one you are buying,
(b) that interest has a market value of £40,000 or more, and
(c) that interest is not reversionary on a lease which has a remaining term of more than 21 years.

Condition D: You are not replacing your only or main residence.

For companies, any purchase of a dwelling is subject to higher rates if conditions A and B are met.

The bands and higher rates are as follows:

Band: market price £ Additional  SDLT dwellings/dwellings from 1 April 2016.
0- 40,000 0%
0 -125,000 3%
125,001 – 250,000 5%
250,001 – 925,000 8%
925,001 – 1,500,000 13%
1,500,001 and over 15%

 

  • Where the property will fall within the Annual Tax on Enveloped Dwellings (ATED) regime, the purchase of a property costing more than £500,000 by a company will be subject to 15% SDLT and the 3% surcharge cannot apply.
  • Properties outside England and Northern Ireland are not subject to SDLT but are relevant in considering whether the higher rates apply.
  • There are special rules for trusts and beneficiaries.

What's new?

2018

Finance Act 2019 provides that for land transactions effective on or after 29 October 2018:

  • The definition of ‘major interest’ is clarified to ensure that the higher rate of SDLT will apply to undivided shares in a major interest in a dwelling.
  • The deadline for amending an SDLT return to claim relief from the higher rate where there is a later disposal of a main residence is extended to the later of 12 months from:
    • The effective date of the later disposal.
    • The filing date for the return.

What do the higher rates apply to?

The higher rate only applies to purchases of major interests in dwellings.

  • For a lease to be a 'major interest' it must have been originally granted for a period of 7 years or more.
  • It does not matter how long the lease has left to run.

What is a dwelling?

‘Dwelling’ takes its everyday meaning and is a building or part of a building that is:

  • Used or is suitable for use as a single dwelling, or in the process of being constructed or adapted for such use.

A dwelling includes:

  • Buy to lets.
  • Holiday homes even if there are restrictions on use.
  • Furnished holiday lettings.
  • Residential accommodation for school children or the armed forces.

The following are not treated as dwellings and the higher rate charge does not apply:

  • Non-residential properties, including: childrens' homes, purpose built accommodation for students in higher education, care homes, hospices, prisons, hotels, inns (or similar establishments).
  • Properties costing less than £40,000
  • Caravans, houseboats and mobile homes.

Is land a dwelling?

Land that is or is to be, occupied or enjoyed with a dwelling, such as a garden or grounds is taken to be part of that dwelling.

  • For land to be a dwelling there must also be a dwelling purchased as part of the transaction.
  • A garden or part of a garden purchased on its own as development land is not a dwelling.
  • Bare land is not a dwelling, but some off-plan purchases are considered dwellings where:
    • Contracts have been exchanged for the purchase of a building, to be constructed or adapted for use as a single dwelling
    • The contract is substantially performed.

What about annexes and subsidiary dwellings?

  • A dwelling which includes a "subsidiary dwelling" is counted as a single dwelling. To be a subsidiary dwelling it must be:
    • Situated within the grounds of or within the same building as the main dwelling, and
    • Worth less than one-third of the total consideration attributed to both dwellings on a just and reasonable basis.
    • It can be a separate building within the grounds of the main dwelling and there can be more than one subsidiary dwelling included in a transaction.
    • If the higher rate does apply, it applies to the whole property, not just to the annexe.

Multiple dwellings relief (MDR): purchase of more than one dwelling

  • Where two or more dwellings are purchased in a one transaction, multiple dwelling relief (MDR) can be claimed.  Higher rate SDLT applies to claims for MDR, so the minimum rate will be 3%.
  • Where 6 or more dwellings are purchased in one transaction, the purchaser can choose whether to apply MDR and the higher residential rates, or apply the non-residential rates with no MDR.
  • MDR is not available if the interest acquired is subject to a long lease (more than 21 years).

See SDLT: Annexes and multiple dwelling relief.

Derelict properties

In P N Bewley Ltd v HMRC [2019] TC6951, the first tier tribunal found that a derelict bungalow was not suitable for use as a dwelling and was subject to the lower rate of stamp duty land tax for a non-residential building.

What does HMRC say about mixed use properties?

  • Where a property is in mixed use, the whole transaction is subject to the lower commercial rates of SDLT.
  • A building used only partly as a dwelling may be suitable for use wholly as a dwelling; overall suitability will be judged from the facilities available at the effective date.
  • Where only a distinct part of the building is used and suitable for use as a dwelling, that part will be residential property and the mixed use provisions will apply

HMRC appears to be treating any land sold with a dwelling as grounds or garden subject to the higher residential rates unless there is a clearly identifiable non-residential use. This seems contrary to their guidance which says garden or grounds only includes land needed for the reasonable enjoyment of the dwelling.

Is there any relief if property is purchased for use as a dwelling in a trade?

Yes but only in limited circumstances. The conditions for relief are:

  • The property is acquired to be exploited as a source of income in the course of a qualifying trade:
    • “Qualifying trade”, means a trade is carried on commercially, with a view to profit, and involving, offering the public the opportunity to make use of, stay in or enjoy the dwelling as customers of the trade on at least 28 days in any calendar year.
  • There are reasonable commercial plans to exploit the property for income without delay (unless the delay has commercial justification or is unavoidable).

People are not considered to have the opportunity to make use of, stay in or enjoy a dwelling unless the areas in which they are able to do so include a significant part of the interiors, taking into account the size, nature and function of any relevant areas in the dwelling.

Married couples

  • Married couples and civil partners are a single unit and can only own one main residence between them at any one time for the purposes of the higher rates.
  • You may be liable for the higher rates if your spouse has an existing residential property.
  • If the new and existing properties are the main residence the higher rate may be refunded if the existing property is sold within three years.
    • This does not apply if you are separated in circumstances which are, or are likely to be, permanent, or under a court order or a formal deed of separation.
  • If you separate and your main residence is sold, only one of you can get relief for replacing the main residence.
  • From 22nd November 2017:
    • Disposals between married couples are not subject to the higher rate.
    • Where one retains an interest in a property on divorce under a property adjustment court order, that property is ignored for the higher rate on a second property purchase.

Joint ownership

If two or more people own or purchase property jointly, if any of the joint purchasers has two or more properties at the end of the transaction date and they are not replacing a main residence, the whole of the consideration is subject to the higher rates of SDLT.

  • This includes parents buying property for their children to live in.

Special rules for business partners

When a partnership in which you are a partner owns a dwelling used for the partnership’s trade:

  • The ownership is ignored when you acquire a dwelling for non-partnership purposes, e.g. as your private residence.

Special rules for inherited properties

  • SDLT is not payable on inherited properties, but they do have to be taken into account when purchasing a new property.
  • Inherited interests can be ignored if:
    • The interest in the property is no more than 50% throughout, and
    • The interest was inherited less than 3 year before the new purchase.

What is classed as my main residence?

  • There is no main residence election for SDLT; HMRC will determine which is your main residence based on the facts and may consider:
    • If you have children, where they go to school.
    • Where you are registered to vote and where your car is registered and insured.
    • How each residence is furnished.
    • The correspondence and registration addresses given to various organisations
    • Which address is the main residence for council tax.

What are the conditions for relief if I am replacing my main residence?

  • The higher rates do not apply when:
    • the new and old houses are bought and sold on the same day
    • you buy your new house after you have sold the old one, and you sold the old one within the last 3 years.
  • When your new house is purchased before your old house is sold, the higher rates will apply but as long as your old residence is sold within the next 3 years you can claim a refund.
  • The repayment form can be completed by you as the buyer or by your agent. The deadline is the later of 3 months after the sale of the old house, or 12 months from the SDLT return filing date. If your agent is making the claim, you’ll need to give them a signed letter of consent to send with it.
  • The 3-year time limit only applies to purchases on or after 26 November 2018.  If you purchased a property before that date, for it to be a replacement for a main residence you must still have previously sold a property that was your only or main residence but the disposal can be more than three years previously.
  • The interest in the old main residence has to have been either a freehold or a lease with a term of more than 7 years.
  • From 22nd November 2017, you must have sold your entire interest in the property to claim relief.
  • If you own a residential property abroad e.g. a holiday home this does not mean that higher rates will be payable when the main residence in the UK is being replaced; condition D will not be met.
  • If you own (and keep) a buy-to-let property and then purchase your first home, the additional 3% rate will apply; you are not ‘replacing’ a main residence. The first-time buyer rates will not apply either as it will not be your first property purchase.

 

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