Stamp Duty Land Tax update
The rules regarding stamp duty land tax (‘SDLT’) have recently been updated, for the third time in two years. Bermans has previously looked at the impact of the introduction of SDLT higher rates, which came into force on 1 April 2016, in two articles which can be found here and here. These articles also provide clarification as to when a purchase may be exempt from higher rates.
This article, however, focuses on the recent changes arising under the 2017 autumn budget, as well as the newly introduced Land Transaction Tax (‘LTT’), payable on the purchase price of properties in Wales from 1 April 2018.
Amongst other things, the autumn budget implemented a relief for first-time buyers of residential properties. This relief applies only to properties purchased in England, Northern Ireland and Wales (for the time being) up to a maximum purchase price of £500,000. SDLT will be payable only on the amount of the purchase price in excess of £300,000, albeit at a rate of 5%. There will be no relief available for properties being purchased that are over £500,000; normal rates will apply to the whole purchase price.
For the purposes of calculating SDLT liability, a first-time buyer is defined as an individual who has never owned an interest in a residential property (in the UK or elsewhere) and intends to occupy the property being purchased as their main residence. It does not apply to an individual who is intending to buy their first residential property for the purposes of letting it out to a third party.
The current rates of SDLT are set out below:
|Property, lease premium or transfer value||Basic SDLT rate||Higher SDLT rate|
|Up to £125,000||0%||3%|
|The next £125,000 (the element from £125,001 to £250,000)||2%||5%|
|The next £675,000 (the element from £250,001 to £925,000)||5%||8%|
|The next £575,000 (the element from £925,001 to £1.5 million)||10%||13%|
|The remaining amount (the element above £1.5 million)||12%||15%|
The above rates will only continue to apply to properties in Wales until 1 April 2018, following which date the rates will change when SDLT is replaced by LTT. The above rates will remain the same in England and Northern Ireland for the foreseeable future however.
It’s important to remember that the higher rates of SDLT only apply to residential properties and not to mixed-use or commercial properties.
The rates as they now apply to first-time buyers, who meet the above-mentioned criteria, are as follows:
|Property, lease premium or transfer value||Rate for first-time buyers|
|Up to £300,000||0%|
|Over £300,000 and up to £500,000||5%|
The changes announced in the autumn budget have already come into effect and apply to purchases that complete after 22 November 2017. The objective of the relief is to remove one of the financial barriers that can prevent first-time buyers from getting onto the property ladder. The relief may only continue to apply to residential properties in England and Northern Ireland however, as it is not yet known whether the Welsh government intends to reverse the first-time buyer’s relief once LTT comes into force.
LTT in Wales
On 31 January 2018, the Welsh government implemented four sets of regulations, some of which deal with the transition from SDLT to LTT and others which set out the new rates as they will apply to residential properties in Wales from 1 April 2018. These rates are set out below:
|Consideration||LTT rate||SDLT rate|
|£0 to £125,000||0%||0%|
|Over £125,000 to £150,000||0%||2%|
|Over £150,000 to £250,000||2.5%||2%|
|Over £250,000 to £400,000||5%||5%|
|Over £400,000 to £750,000||7.5%||5%|
|Over £750,000 to £925,000||10%||5%|
|Over £925,000 to £1.5 million||10%||10%|
|Over £1.5 million||12%||12%|
When purchasing a residential property in Wales prior to 1 April 2018, it’s advisable to seek legal advice as to the level of LTT payable, due to the complexity of the transitional regulations.
In cases of divorce
Further changes were introduced under the budget that have implications for couples who are separated or divorced, but jointly own a residential property. In cases where a court orders one spouse to allow their partner to continue to live in the jointly-owned family home, that spouse will no longer be liable to pay the higher rates of SDLT when purchasing a new residential property. The wording in the budget suggests that this relief from the higher rates would not apply unless a court order has been made; this however remains to be seen and will be confirmed in the legislation which comes into force later this year.
It is crucial to remember that there are strict time limits for notifying HM Revenue and Customs that a transaction has completed and to make payment of any SDLT liability. SDLT returns must be submitted within 30 days of the completion of the purchase. If the return is submitted outside of the 30-day period, penalties and interest will become payable.
The rules surrounding SDLT and LTT are becoming increasingly complicated and it is recommended that legal advice is sought before an attempt to calculate SDLT liability is made. If you do require advice or help in navigating the SDLT rules, or have any other property-related enquiries, please do not hesitate to contact a member of our property team on 0151 224 0500.