Stamp duty land tax holiday

For “higher rates” purchases we have to add an extra 3% of the whole price. This means that the same reduction in the amount of SDLT applies to both kinds of transaction during the SDLT holiday period. The maximum saving for a transaction involving one dwelling is £15,000 and applies where the purchase price is £500,000 or more.

• The standard rates apply for example where the buyers have no other properties or where they are selling an existing home and buying a new one.
• The higher rates apply for example where a company buys residential property, or where individuals buy when they own another property and do not meet the “replacement of main residence” tests.

What if I had previously exchanged contracts?

There is nothing to stop the benefit of the saving, so long as completion happens between 8 July 2020 and 31 March 2021. The only problem would be if there was “substantial performance” before 8 July 2020 (this could be by taking possession of the property before then).

What happens if I completed my purchase before 8 July 2020?

The full amount of stamp duty land tax due under the old rules is still payable, even if it is yet to be paid to HMRC.

Does this saving apply to purchases of residential property by companies?

Yes, surprisingly these changes apply to higher rates transactions as well; we just add 3% of the price to the SDLT which would be due on the reduced standard rates.

Some buyers of a new home consider transferring their old home into a company so that the purchase of the new home can escape the 3% surcharge.  The company has to pay stamp duty land tax on the prevailing rates on the market value of the property it acquires.

There is still a trap for acquisitions by companies for over £500,000, where the 15% flat rate of SDLT can still apply. Care needs to be taken here to make sure that one of the reliefs from the 15% rate applies to leave the new SDLT rates (with the extra 3%) in place.

Those with buy to let portfolios who have been considering transferring the properties to a limited company will find the SDLT cost is lower than before the rates reduction. The limited company could be special purpose vehicle, perhaps a family investment company.

How does this work for lease extensions?

The same principles apply to the payments made for residential lease extensions.  So often there will be no SDLT to pay where the premium payable for the extended lease does not exceed £500,000.  But care needs to be taken in case the 3% surcharge applies.  This could be the case if the lessee (or a spouse / civil partner) has other property interests.

I am buying from a developer and agreed an allowance against the price for stamp duty

If contracts have already been exchanged and the contract contains an allowance / incentive on account of stamp duty for a fixed amount of money, then it might well be that the allowance has to be taken off the amount paid to the developer at completion, even though there is now no (or reduced) SDLT to pay to HMRC. It will depend on the wording in the contract.

If contracts have not yet been exchanged, then the parties might need to renegotiate the allowance. For example they might decide instead to give the equivalent extra value through enhancements to the specification of the property or through a cash incentive.  This change might have to be notified to the lender, though many mortgage lenders have already said a new Disclosure of Incentives Forms will not be needed.

What about help to buy?

Homes England have confirmed that the Help to Buy process is not affected by the stamp duty changes.  It is only increases in incentives which would need to be reflected in the Disclosure of Incentives Form required for Help to Buy equity loans.  If the incentives switch from one form to another then the disclosure form does not need to be amended; this is only required where the incentives increase.  Incentives still cannot be more than 5% of the full purchase price.

What about a house with a granny annexe or other subsidiary dwelling?

Sometimes a property counts as two or more dwellings and it is possible to reduce the SDLT by claiming multiple dwellings relief (MDR).

Care now needs to be taken because sometimes the effect of claiming MDR could be to increase the amount of SDLT! This is because of the rule that the effect of claiming MDR can never be to reduce the SDLT to less than 1% of the chargeable consideration.

Take for example a property bought for £600,000 where there is an annexe which is sufficiently self-contained to count as a dwelling in its own right and where the 3% surcharge does not apply.

• SDLT without claiming MDR is calculated at 0% on the first £500,000, then at 5% of the next £100,000 to give SDLT of £5,000.
• If MDR is claimed, the 1% rule applies, so the SDLT would be £6,000.

If the price for the same property is £500,000 then there would be no SDLT to pay at all in the absence of a claim for MDR, but £5,000 if the relief is claimed.

More on multiple dwellings relief

The “break even” point for a property comprising two dwellings where the 3% surcharge does not apply is £625,000.  Above that it gives a saving to claim MDR.  For cases where the 3% surcharge applies, the “break even” point is £500,000.

At the top end of the scale, MDR now gives a bigger saving for higher value properties.  Previously the maximum saving for claiming MDR for a property comprising two dwellings was £86,250.  Now it is £101,250.  This is because of the double use of the more generous lower rates of SDLT giving an extra £15,000 saving.  The maximum savings are achieved where the price is £3M or more.

There are some properties, such a purpose built student accommodation, which could do particularly well out of the changes.  MDR can apply to them without the 3% surcharge being due.

What about a property with a field?

It can be a grey area whether properties which come with paddocks and fields counts as “residential property” or as “mixed use property“. Previously it was almost always the case that the SDLT would be less if the property counted as mixed use. That is now turned on its head for properties worth under £1,215,000.

Take for example a house with a field being sold for £800,000.

• At standard residential rates the SDLT would work out at £15,000.
• At mixed-use rate the SDLT would work out at £29,500.

For properties where the 3% additional SDLT would apply if it were residential, then it still always works out as less SDLT if the property counts as mixed use.  The 3% surcharge does not apply if the property is mixed use.  The difference between mixed rates and the temporary reduced residential rates is fairly marginal at around the £500,000 price level (£14,500 for mixed use, £15,000 at the temporary residential rates allowing for the 3% surcharge).

What about shared ownership leases?

Someone taking a grant of a new lease from a social landlord on a shared ownership basis has a choice at the beginning whether:

• (a) to pay SDLT all in one go on the market value of the whole property; or
• (b) to pay SDLT on the price paid and then pay more SDLT when staircasing to beyond 80%.

It will nearly always, during the holiday, make sense to elect to pay SDLT on the market value given that the SDLT is likely to be zero. That will then protect against having to pay SDLT should staircasing happen in a less beneficial regime.

This option is not available when taking an assignment of a lease from someone who already holds the lease granted by the social landlord.  The election can only be made when the lease is taken.

Those staircasing out to beyond 80% during the holiday are unlikely to have to pay any SDLT.  Sometimes people staircasing have another property and need to check whether the 3% extra SDLT applies to the staircasing transaction.  My view is that in the majority of cases, where the interest held remains the same lease and the effect of staircasing is to reduce the rent, there is no acquisition of a “major interest” and so the higher rates cannot apply.  I know that other people have different views on this.

What about first time buyers’ relief?

First time buyers’ relief does not apply for the period of the holiday because the reduced rates are more generous than the rates where first time buyers’ relief applied, which only gave a relief for up to £300,000 of the price.  It is set to revive though after 31 March 2021.

During the temporary relief period, first time buyers will have no stamp duty advantage against someone selling their home and buying a new one.  Nor will they have any advantage against someone buying a property to rent out but who escapes the 3% surcharge on the basis of not owning any other properties.

The advantage for a first time buyer against other investors (who are liable to the 3% surcharge) is narrowed to the 3% surcharge.

What about linked transactions?

If you have linked transactions, some before the change, some afterwards, then it is time to take specialist advice!  Here is a worked example on simple facts to give an idea of the calculations involved:

P buys two new flats under a single contract for £500,000 and £700,000.  One completes on 3 July 2020 (before the change) the more expensive one on 8 July 2020 (whilst the reduced rates apply).  I am assuming that the circumstances are such that the 3% surcharge applies to both transactions.

As there are two linked transactions, SDLT is payable on the aggregate price of £1.2M at the rates in force on the relevant dates.  SDLT with the 3% surcharge on £1.2M claiming multiple dwellings relief (calculated on the average price and doubling the result) would have been:

• £76,000 for a 3 July 2020 purchase
• £46,000 for a 8 July 2020 purchase

The SDLT liability is calculated as:

• 5/12 of £76,000 for the 3 July purchase to give SDLT of £31,667
• 7/12 of £46,000 for the 8 July purchase to give SDLT of £26,833

That gives total SDLT for the two linked transactions of £58,500.

What about non-residential and mixed use transactions?

They are not affected by the changes.  There is an exception though.  If in a mixed use transaction (or linked transactions) there are two or more dwellings, then multiple dwellings relief can be claimed if that is beneficial.  It is now more likely to be beneficial because of the reduced rates of SDLT for residential property.

Will developers build more houses?

This is difficult to predict, but one problem is that the usual build times would require footings to be put in place in July 2020 if the units are to be ready for a sale in March 2021.

Issues with substantial performance

There is an oddity with the way the provisions about substantial performance are drafted.  They are intended to allow those who substantially perform their contracts during the “temporary relief period” to benefit from the temporary rate reduction when they complete the transaction after the period ends.  But this benefit only applies where the only reason for an increase in the tax is the change back to the pre-holiday rates of SDLT.

There will be an issue with cases where there is a change in the arrangements after the date of substantial performance which increases the chargeable consideration.  For example if extra payments are agreed in return for a delay in the completion date, then the buyer could lose the benefit of the temporary rates and have to pay a “top up” triggered by completion to the usual rates.

There could also be difficulty for contracts with variable payments (such as where extra payments are due dependent on the outcome of a planning application).  The issue is referred to briefly in the policy paper published on 10 July 2020.

HMRC are alive to the need to put provisions into the legislation for the 2% surcharge for non-UK resident purchasers so that any imposition of the 2% surcharge on a transaction in these circumstances will not also cause a loss of the temporary relief reduction (well done, Jonathan Evans at Deloitte LLP).  We still await the draft legislation for the 2% surcharge, so we will see what they do.

What will happen in April 2021?

The stamp duty rates will go back to their previous levels (according to the announcement and the draft legislation). Most buyers would want to complete their transactions by the end of March 2021, so I would expect the market to be very quiet in April 2021. Many conveyancers and SDLT specialists might well think of taking a holiday of their own then!

For non-UK resident buyers, we are also expecting the extra 2% SDLT to start then.

The last time thresholds were raised, there was an extension.  An increase of the threshold from £125K to £175K was made to run from 3 September 2008 to 2 September 2009.  It got extended to 31 December 2009.  There might well be pressure this time for an extension.

Why was this brought in without advance notice?

As the Policy Paper points out, “It would not be in the public interest to consult, as this may have an adverse effect on the housing market if buyers delayed purchases during the consultation period.”

How is this brought into force now without a Budget?

The Stamp Duty Land Tax (Temporary Relief) Bill has been brought before the House of Commons and is expected to pass all stages in the Commons on 13 July 2020 according to a House of Commons Library research briefing of 9 July 2020.  In the meanwhile it is in effect by virtue a resolution of the House of Commons moved on 8 July by the Chancellor under the Provisional Collection of Taxes Act 1968.  This can be found in Hansard at the end of the debate on the Economic Statement.

Update of 17 July: The Bill passed all stages in the House of Commons on 13 July and is expected to pass the House of Lords stages today (17 July).  Royal Assent is expected to follow by 22 July 2020.

Update of 23 July: Royal Assent was indeed given on 22 July so the rules are now in force by virtue of The Stamp Duty Land Tax (Temporary Relief) Act 2020.

This article was first published 9 July 2020, and last updated on 23 July 2020. This is intended for general information purposes only and do not constitute legal or professional advice. Advice should be sought before proceeding with any transaction.