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An analysis of the new Stamp Duty holiday

Everything you wanted to know about the Chancellor’s new Stamp Duty holiday but were afraid to ask.

What has happened?

As was widely leaked in the run-up to the Summer Statement, the UK government launched an eight-month Stamp Duty ‘holiday’ on 8 July 2020. It ends on 31 March 2021. It means that the point at which most individuals pay Stamp Duty is lifted significantly from £125,000 to £500,000. Only purchases of dwellings made by companies and purchases of ‘additional’ dwellings by individuals (subject to the replacement of main residence exception) will suffer Stamp Duty in this period – a 3% surcharge.

What are the new temporary rates?

The new temporary rates are as follows:

Table: New temporary rates

Tax Band Tax Rate
So much as does not exceed £500,000 0%
So much as exceeds £500,000 but does not exceed £925,000 5%
So much as exceeds £925,000 but does not exceed £1,500,000 10%
The remainder (if any) 12%

 

Here are some examples:

Table: Replacement of main home

Price
(£)
Usual SDLT
(£)
New SDLT
(£)
Saving
(£)
250,000 £2,500 £0 £2,500
500,000 £15,000 £0 £15,000
1,000,000 £43,750 £28,750 £15,000
1,500,000 £93,750 £78,750 £15,000

 

Table: Purchase of ‘additional’ property

Price
(£)
Usual SDLT
(£)
New SDLT
(£)
Saving
(£)
250,000 £10,000 £7,500 £2,500
500,000 £30,000 £15,000 £15,000
1,000,000 £73,750 £58,750 £15,000
1,500,000 £138,750 £123,750 £15,000

 

The aim of the holiday is to maintain confidence in the housing market following the Coronavirus pandemic.

Who benefits from the holiday?

Practically everyone, provided they complete in the holiday period. With one exception, everyone buying a dwelling in England and Northern Ireland completing between 8 July 2020 and 31 March 2021 (inclusive) will benefit by up to £15,000. It is not limited to homebuyers or first-time buyers. Investors, traders and developers also benefit. The exception applies where individuals use companies to purchase dwellings worth more than £500,000 for owner-occupation (‘enveloping’). In that case, a flat 15% rate applies to the price.

Where completion happened before 8 July 2020, the holiday does not apply. No reclaim for a repayment of the tax can be made, even if completion happened within 14 days of that date (the payment window for the tax).

Where completion happens after 31 March 2021, even if exchange happens before that date, the holiday will not apply unless the contract is ‘substantially performed’ before 1 April 2021. For what counts as ‘substantial performance’ please speak to us. Note: a price increase after substantial performance may mean losing the holiday.

Different rules apply to purchases of property in the rest of the UK. The Scottish Government has also announced that it will pass legislation to give a similar holiday, increasing the nil rate band from £145,000 to £250,000 in the same period. The Scottish holiday, once launched, will not be backdated.

Can you still claim relief on purchases of family homes with ‘granny flats’?

Yes, in principle, provided that the ‘granny flat’ is self-contained. Claiming the relief means that the tax is calculated on the average price per dwelling (for most ‘granny flats’ this means that the price would be divided by two). In a few cases the new temporary rates mean that more tax is payable if you claim the relief, so you should calculate the tax with and without a claim for the relief.

What about purchases of non-residential and mixed-use property?

The rates for non-residential (or mixed) property transactions are unaffected. The rates are as follows:

Table: Non-residential (or mixed) property

Tax Band Tax Rate
So much as does not exceed £150,000 0%
So much as exceeds £150,000 but does not exceed £250,000 2%
The remainder (if any) 5%

 

Note: the purchase of any non-residential property in a transaction in theory engages these rates. The price is not apportioned between the two types of use, with the different sets of rates applying to each proportion.

The new temporary rates mean that for purchases under £1,215,000, buyers will pay more Stamp Duty on mixed-use property. But, unlike the relief for purchases of more than one dwelling (‘multiple dwellings relief’ or MDR), you cannot do two calculations and choose the route that produces the lowest amount of tax. Put another way, you cannot elect to pay tax at the residential rates or the non-residential rates.

What about bulk purchases?

The purchase of six or more dwellings in a single transaction continues to be taxed at the non-residential (or mixed) rates unless a claim for MDR is made. This applies equally to the purchase of a building composed of six studio flats and to the purchase of six houses.

Note that the new temporary rates give a benefit per property where MDR is claimed. The following table illustrates this:

Table: Purchase of 10 dwellings

Price
(£)
Usual SDLT
(with MDR)
New SDLT
(with MDR)
Saving
(£)
1,500,000 £50,000 £15,000 £35,000
2,500,000 £100,000 £25,000 £75,000
5,000,000 £300,000 £50,000 £250,000

 

Can I still claim first-time buyer relief?

No, the relief is suspended during the holiday period. But this does not matter. The new temporary rates are more generous than the relief (which merely increases the threshold to £300,000). The relief will be reactivated on 1 April 2021.

Should I act now?

That depends on your view of what will happen to property prices. Many economists have said that we are entering the deepest global rescission since records began. If the UK Government’s efforts to stem rising unemployment fail, property prices may fall. It is possible people will wait until the start of next year to try to benefit from the holiday and a fall in property prices. One thing is certain: the volume of sales will fall significantly once the holiday ends. Non-residents purchasing dwellings after 1 April 2021 will be particularly hit. They will lose the holiday and suffer an additional 2% surcharge. This means that if they purchase an additional dwelling after 1 April 2021, they will suffer a total surcharge of 5% (3% plus 2%). Take the following example:

Table: Non-resident purchasing “additional” dwelling personally

Price
(£)
SDLT Now
(£)
SDLT from April 2021
(£)
Extra cost
(£)
3,000,000 348,750 437,250 88,500
5,000,000 648,750 777,250 128,500
10,000,000 1,398,750 1,627,250 228,500

 

What about transactions in existing dwellings?

The holiday benefits all transactions in residential property (except where the flat 15% rate applies). It does not only apply to purchases of new property. Here are some examples:

Transfers of equity

Example: husband gives a half share of his house worth £1.2 million to his wife (the mortgage is £600,000).

Usual SDLT
(£)
New SDLT
(£)
Saving
(£)
5,000 0 5,000

 

Collective enfranchisement

Example: five flat-owners collectively purchase the freehold in their block for £1,250,000

Usual SDLT
(£)
New SDLT
(£)
Saving
(£)
12,500 0 12,500

 

Staircasing

Example: an owner of a shared ownership lease buys the remaining 50% share of his home for £250,000

Usual SDLT
(£)
New SDLT
(£)
Saving
(£)
2,500 0 2,500

 

Incorporations of buy-to-let portfolios

Example: husband and wife jointly own 10 buy-to-let properties worth £1.5 million and wish to transfer them to a jointly-held company to enable the mortgage interest to be offset against the rental income to reduce the tax on the rental income

Usual SDLT
(£)
New SDLT
(£)
Saving
(£)
50,000 45,000 5,000

Will it work?

The aim of the holiday is to maintain confidence in the housing market following the Coronavirus pandemic. The jury is out on whether it will achieve that aim. The experience from past Stamp Duty holidays is mixed. They accelerated transactions but did not increase the number of transactions and sellers tended to benefit by almost half of the Stamp Duty saving by increasing prices. We will have to wait to see whether this holiday is any different. The threat of a significant fall in house prices next year may mean that only those who already intended to buy do so during the holiday period: see ‘Should I act now?’ above. The potential ‘multiplier’ effect is possibly more significant. The housing market supports many jobs from home furnishing retail to home removals, tradesmen to estate agents, etc. This measure is part of the plan to save jobs.

Stamp Duty is very complex. This is only a summary of the rules. Always ensure you pay the right amount of tax by taking specialist advice.

Would you like to know more?

If you would like to discuss how the Stamp Duty holiday may affect you, please get in touch with your usual Blick Rothenberg contact or one of the partners to the right.

You can also visit our Property & Construction hub for more insights.