Stamp Duty Land Tax (SDLT) has now become a highly complex area and requires careful consideration to ensure the rates and exclusions applied are correct. At first glance, it may appear that relief is available but on closer inspection of the scenario this may not be the case. For example, where a property is over £500,000 and the property is not a first purchase for the buyers collectively, they will not be eligible for first time buyer relief.
There have been some highly colourful interpretations of ‘the mixed-use’ category where rates are significantly reduced. For example, an artist’s studio in a garden, an office in a mews house and selling apples for pressing commercially have all been suggested as being commercial use under the SDLT legislation. The revenue is investigating such designation more frequently to claw back SDLT.
It is also important to consider the floor plan, where more than one property is contained within the demise, in case ‘averaging relief’ can be claimed. However, the revenue does have a clawback provision where the number of dwellings is reduced within 3 years.
An area causing much debate is the additional 3% charge for companies (charged on every purchase where an exemption to 15% rate is applied) and individuals who own residential property worldwide. In this case, the exemption applies where a main residence is being replaced. However, the guidance requires that it is the intention of the buyer at the time of purchase to live primarily in that residence and the replacement of such and not a matter of allowing the purchaser to choose which property is to be the main residence. Married couples are treated as a single person when applying the test so where a property is owned by one spouse this will be relevant for both when replacing the main residence and calculating whether the higher rates are available. The ownership of inherited property is ignored where an interest does not exceed 50%. However, if one spouse who does not own any property purchases in their individual name they are affected where the other spouse owns a property portfolio or even one other property and the purchasing spouse will pay the higher surcharged rate.
The higher rate of 15% is charged when non-natural persons purchase the property i.e. a company or a partnership. However, the rate can be reduced to the surcharged additional 3% where the company is a property developer or rents properties as a business (with no connected person in occupation). In any event this rate only kicks in over £500,000 so although the 15% rate may not be charged, the additional property 3% rate will be. The revenue’s calculator does not make provision for an SDLT calculation for non-natural persons, so on initial calculation, this can be misleading.
Higher rates of SDLT may be also payable where there is a linked transaction, for example, where either two properties are being purchased or a building contract for works has been entered into separately.
A further area requiring consideration is where clients are divorcing and the couple transfers the property to one of the co-owners. SDLT is usually payable on the equity or mortgage being taken by the purchasing party. However, an exemption applies where there is a court order or deed of separation in place or where the separation is likely to be permanent.
A number of tenancy agreements in central London will exceed the £125,000 threshold meaning that SDLT is due on the signing of a tenancy agreement by the buyer. The amount is cumulative and therefore any renewals will also be caught.
The revenue also plan to reduce the filing period from 30 days to 14 days, although this is still to be confirmed. It is imperative that specialist advice is obtained on the SDLT liability levels, as it has become a complex area.