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Stamp duty and how to stamp it out

January 12, 2016

By Simon Misiewicz

Has Stamp Duty Land Tax (SDLT) hit your wallet?

Would you like a remedy to soothe away the SDLT pains?

The Diagnosis

Tax issues need to be understood to diagnose a problem and for a remedy to be implemented.

SDLT is, broadly speaking, charged as a percentage of the amount given for property or land when it is bought or transferred.

The chargeable consideration is simply the purchase price (excluding the value of any extras such as carpets or furniture which are not counted as fixtures and fittings) so you apply the relevant SDLT threshold and rate to the purchase price.

SDLT may be payable when property or land is bought or transferred, whether or not the transaction involves payment of money and/or non-monetary consideration (which can include goods, services or the assumption of financial liabilities). The total amount on which SDLT is payable is known as the ‘chargeable consideration’.

The payment of SDLT can damage the Return On Investment (ROI) calculation and you may therefore take the decision not to buy the property.

Does that need to be the case or is there a scenario that allows you to pay less SDLT?

The Treatment — applying the right tax-reducing medicine to your tax illness

Gifts

SDLT does not usually apply if the property is given and received purely as a gift and there is no chargeable consideration.

Here are some examples of how gifting properties may relieve the SDLT pains:

A father gifts a property worth £200,000 to his son for no monetary consideration. There is no mortgage on the property. The transfer in this instance does not need to be declared, as there is no chargeable consideration.

A mother gifts a property worth £200,000 to her daughter for no monetary consideration. There is, however, a mortgage on the property of £180,000 at the date of the transaction and the daughter assumes responsibility for that mortgage. SDLT is due on that outstanding mortgage sum. This transaction does need to be declared.

Divorce

Certain transactions made in connection with the ending of a marriage, or a civil partnership formed under the Civil Partnership Act 2004, are exempt from stamp duty.

These transactions are those that are made between the parties concerned in the marriage or civil partnership as a result of:

  • certain types of court order
  • an agreement between the spouses/partners in contemplation or in connection to the dissolution or annulment of their marriage or civil partnership
  • their judicial separation or a separation order

The exemption is not available if the transaction involves someone other than the spouses or civil partners.

Death

A transaction following a person’s death that varies a disposition (whether effected by will, under the law relating to intestacy, or otherwise) of property of which the deceased was competent to dispose, is exempt from charges if the following conditions are met:

  • the transaction is carried out within the period of two years after a person’s death
  • no consideration in money or money’s worth other than the making of a variation of another such disposition is given for it

This exemption applies whether or not the administration of the estate is complete or the property has been distributed in accordance with the original dispositions.

Limited Companies buying houses

Where a “housebuilding” company or a property trader buys a home from an individual who is buying a new home from them, the purchase by the housebuilder or property trader is exempt from SDLT if certain conditions are met.

The individual must:

  • have lived in the home as their main or only residence at some time during the two years before the housebuilding company or property trader bought it
  • buy a new home from the housebuilding company
  • intend to live in the new home as their main or only residence

In addition, the area of land that the housebuilding company or property trader buys along with the old home must not exceed certain limits — normally 0.5 hectare.

Reliefs against SDLT

Averaging

If you have the opportunity to buy a block of flats that is a freehold or leasehold with less than 21 years left then you can average the value of each dwelling to reduce SDLT.

Here are some examples of how you can do this:

Example 1

The freehold of a new block of 20 flats is purchased for £2.5 million. There is no head lease and none of the flats are subject to a long lease.

The transaction is relevant for the purposes of the relief as it involves the acquisition of more than one dwelling, i.e., the 20 flats. The freehold is treated as if it were an element in the individual dwellings. The chargeable consideration divided by the number of dwellings is £125,000. This is below the normal 0% SDLT threshold but the minimum rate of tax under the relief is 1%.

The tax due is therefore 1% of £2.5 million = £25,000.

Example 2

The freehold of a block of 10 flats is purchased for £1.4 million. There is no head lease but five flats are let on 99-year leases.

The transaction is a relevant transaction for the purposes of the relief as it involves the acquisition of more than one dwelling, i.e., the five untenanted flats.

As they say it is all in the planning, so before you purchase a property and pay the relevant SDLT, it is worth considering the above to see if you can reduce your liability.

Next steps —  if you want to see if you can reduce your stamp duty liability

If you want to understand how to implement this strategy or to discuss other finance/tax questions, then please book some time with us using the below calendar:

If you are looking for a new accountant then please book some time with us using the below calendar. Please note that this booking is to describe our services and will not be used to discuss your personal tax affairs.



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Telephone: 0115 939 4606
Email: simon@optimiseaccountants.co.uk