Stamp Duty Land Tax on Residential Property – From Slab to Slice!
30 April 2015
Practice Area: Real Estate
On 4 December 2014 the government abolished the unfair “slab” structured approach to Stamp Duty Land Tax (“SDLT”) on the acquisition of residential property and replaced it with a “slice” system. Under the new system, no SDLT is payable on the first £125,000 of the purchase price. Thereafter SDLT is due as follows: -
• 2% on the slice from and including £125,001 to and including £250,000;
• 5% on the portion commencing at £250,001 to and including £925,000;
• 10% on the part beginning with £925,001 to and including £1,500,000; and
• 12% on the amount of the consideration over £1,500,000.
What effect will the changes have on the market?
Commentators believe that the proportional changes now make the system fairer as they reduce market distortions that the old system invariably created by cutting out “dead zones” in the market (price points just above the old thresholds, £125,000, £250,000 and £500,000). This means that properties worth just above these thresholds can now be freely marketed at their true value and not at a lower artificial level to attract more purchasers seeking to save on SDLT. Property economists argue that these changes have, over the past few months, helped to stimulate activity at the lower end of the market, increasing competition and therefore meaning that SDLT savings by first time buyers may be outstripped by those increasing prices. It is therefore sellers who should primarily benefit from the changes.
What properties do the changes apply to?
The changes only relate to residential property. This includes buildings that are used as or are suitable for use as dwellings, their gardens and grounds and residential accommodation for school pupils and students other than those in higher education. The status of a residential house or apartment is generally easy to identify. The judgment as to whether or not a property is residential should be based on the property’s use at the effective date of the transaction (usually but not always the completion date). This takes precedence over any past or intended future use. Various properties are specifically excluded from being residential, e.g. student halls of residence, care homes, hospitals and hospices. There is no change in the way SDLT is calculated on non-residential property. Undeveloped land is most likely non-residential property however it may be considered to be residential property if, at the effective date, residential buildings are being built on it (so long as the total number of buildings does not exceed 5 – see further below).
Multiple Purchases of Residential Property
In addition, if six or more properties form part of a single transaction (whether acquired by a corporate purchaser or not) the rules, rates and thresholds for non-residential properties apply. The amounts paid for all the properties in the transaction must be added together to establish the SDLT payable. In addition to the acquisition of six or more residential properties, non-residential property includes commercial property such as shops or offices, agricultural land, forests, any other land or property which is not used as a dwelling.
Niall Hargan is a solicitor in Carson McDowell’s Real Estate department and regularly advises clients on their Stamp Duty Land Tax obligations. Should you require any advices in relation to Stamp Duty Land Tax, please do not hesitate to contact Niall on +44 (0) 28 9034 8837.