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How will the stamp duty holiday work?

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The government  has announced a temporary holiday on Stamp Duty Land Tax (SDLT) on the first £500,000 of all residential property purchases across England and Northern Ireland – a huge buying incentive for those who have been holding back following the implications of the COVID-19 pandemic.

The aim of the ‘SDLT holiday’ is to kickstart the residential property market by making property more affordable, thus aiding the economic recovery.

What is SDLT?

SDLT is a tax that’s payable when you buy a property over a certain price in England and Northern Ireland. It’s a mandatory payment that must be made to HMRC within 14 days of the completion of the transaction.

The usual SDLT threshold prior to the announcement was £125,000 for residential properties. In short, this meant that any purchase below this figure was exempt from SDLT liability.

First-time buyers are eligible for a relief to assist them with getting on the property ladder. If you’re a first-time buyer, you pay less SDLT or potentially none at all if:

  • The purchase price is £500,000 or less
  • You, and anyone else you’re buying with, are first-time buyers – there are some quite complex tax rules around this particular aspect and as such it’s always sensible to consult an accountant in the first instance if you have specific tax questions or concerns.

When is SDLT payable?

Your solicitor should advise you at the outset about potential SDLT liability as for some transactions it can be quite a considerable amount and a determining factor as to whether the transaction proceeds.

You are required to pay SDLT when:

  • You purchase a freehold property
  • You purchase a new or existing leasehold property
  • You purchase a property through a shared ownership scheme
  • When you transfer land or property in exchange for payment

How much SDLT is payable?

Well, that depends on:

  • The value of the property
  • Your individual circumstances and whether or not there are any additional tax reliefs (other than the first-time buyer’s relief for residential property) you can look to apply for. Again, discuss this with your account if you have any specific tax questions.
  • It also depends on whether the land or property is residential in nature or non-residential or mixed-use.

What does this latest update mean and what should I do as a result?

In the first instance, let’s be clear on what we know so far:

  • These changes are temporary and take immediate effect (from 8 July 2020) and are scheduled to run to and including the 31 March 2021 – the ‘SDLT holiday period.’
  • The SDLT holiday is applicable to residential property only.
  • If you purchase a residential property during the SDLT holiday period, you will only pay SDLT on the amount over the £500,000 threshold.

 

Property or lease premium or transfer value SDLT rate
Up to £500,000 Zero
The next £425,000 (the portion from £500,001 to £925,000) 5%
The next £575,000 (the portion from £925,001 to £1.5 million) 10%
The remaining amount (the portion above £1.5 million) 12%

 

How does this affect the purchase of second homes and additional properties?

The 3% higher rate for purchases of additional residential properties now applies on top of the revised standard rates above for the SDLT holiday period. Here’s how it looks now:

 

Property or lease premium or transfer value SDLT rate
Up to £500,000 3%
The next £425,000 (the portion from £500,001 to £925,000) 8%
The next £575,000 (the portion from £925,001 to £1.5 million) 13%
The remaining amount (the portion above £1.5 million) 15%

 

The nil rate band which applies to the ‘net present value’ or (NPV) of any rents payable for residential property has also been increased to £500,000 over the SDLT holiday period. Here’s how it looks now:

 

Net Present Value of any Rent   SDLT rate
Up to £500,000 Zero
Over £500,000 1%

 

Please note that Harrison Drury Solicitors is not authorised or regulated by the Financial Conduct Authority (FCA), to carry out regulated financial activities. We always advise clients to speak with their accountant regarding such matters and that should continue to be the case, especially following these latest temporary changes.

If you are now considering proceeding with a residential property purchase to benefit from the SDLT holiday incentive, we have a dedicated Residential Property Team who are on hand and happy to help. Call us on 01772 258321.


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