Since the introduction of the SDLT surcharge (additional 3%) – one key question we are asked by investors and lawyers is, does this always apply if the purchaser owns another property?
The answer is that there are limited number of scenarios where the higher rate of SDLT may not apply. The 5 most common scenarios are outlined below;
1. Main residence replacement (including subsidiary properties)
When the purchaser is replacing their main residence the surcharge does not apply. If they do not sell their main residence at the same time the SDLT surcharge will most likely apply and a refund of the higher rate of SDLT paid can be claimed if their previous residence is subsequently sold within 3 years.
When inheriting a property it is disregarded for 3 years when considering whether the SDLT surcharge applies.
3. Value of existing or new properties is <£40,000
If the consideration paid is less than £40,000 or the share owned in another residential property is worth less than £40,000, the SDLT surcharge may not apply. In today’s property market there are few properties available for less than £40,000 but it also apply if only part of a property is transferred.
4. Student accommodation
Student accommodation is specifically exempt from the SDLT surcharge.
5. Uninhabitable properties
If the property is not suitable for habitation e.g. a dilapidated building requiring extensive renovation before it would be considered habitable, it may not qualify as a dwelling and as such the SDLT surcharge will not apply.
For further information on the SDLT surcharge click here for HMRC’s guidance.
It is not uncommon for these scenarios to be missed and as a result the higher rate of SDLT is paid on a transaction where it should not have been.
Other opportunities to reduce your SDLT
Understanding the SDLT surcharge rules is not the only area that can save you money and reduce your SDLT liability.
Large areas of land
If your property has land attached to it large areas of land, with some agricultural use it’s likely you may qualify for “mixed-use” SDLT rates and potentially save thousands.
Does your property have a ‘granny annex’ or separate living accommodation? You could qualify for “multiple dwellings” tax relief.
You may qualify for multiple dwellings relief or “mixed-use” which could substantially reduce the applicable SDLT rates and save significant tax.
Woodlands and orchards
Where woodland or orchards are parcelled up in the same transaction alongside a residential property, it may be argued the purchase is “mixed-use” resulting in lower rates of SDLT being applied and significant savings being achieved.
Six or more residential properties
If you purchase 6 or more residential properties as part of one transaction, there may be a choice between multiple dwellings relief and commercial rates of SDLT.
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Why is SDLT relief so complex?
Clients tend to be over reliant on their accountant for all tax matters. The complexity of the tax system means that most accountants are no longer experts in tax and specialist tax advice should be sought.
Solicitors, lawyers and agents are not tax specialists, and yet in many cases can become liable in cases where they have made incorrect assumptions regarding a property and the SDLT position which leads to incorrect filings and payments being made.
SDLT legislation has been subject to multiple changes, most recently in July 2016. The full range of changes have significantly complicated the application of this tax and led to widespread confusion.
What do I do if I think I have overpaid SDLT?
Firstly do not panic, you may be able to claim a refund. Contact us for a free assessment on whether you may be eligible for a refund.
If you have not yet completed your purchase or filed your SDLT return contact us to see if we can reduce your SDLT liability before you pay it.