Posted by Simon Misiewicz on 11th September 2014
Does stamp duty hurt your wallet?
Would you like a remedy to soothe away the SDLT pains?
Tax issues need to be diagnosed in order to be understood for a remedy to be implemented.
Stamp Duty Land Tax or SDLT, broadly speaking is 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’.
Rates of SDLT
|Up to £125,000||Zero|
|Over £125,000 to £250,000||1%|
|Over £250,000 to £500,000||3%|
|Over £500,000 to £1 million||4%|
|Over £1 million to £2 million||5%|
|Over £2 million from 22 March 2012||7%|
|Over £2 million (purchased by certain persons, including corporate bodies) from 21 March 2012||15%|
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 whereby you pay SDLT?
Applying the right tax reducing medicine to your tax illness.
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 is not notifiable 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. Stamp Duty Land Tax (SDLT) is due at the rate of 1% on that outstanding mortgage sum. This transaction is notifiable.
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 SDLT.
These transactions are those made between the parties 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.
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 charge 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 house-building company or property trader buys a home from an individual who is buying a new home from them, the purchase by the house builder 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 house building company or property trader bought it
- buy a new home from the house building company
- intend to live in the new home as their main or only residence
In addition, the area of land that the house building company or property trader buys along with the old home must not exceed certain limits – normally 0.5 hectare.
Reliefs against SDLT
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 values of each dwelling to reduce SDLT.
Here are some examples of how you can do this
The freehold of a new block of 20 flats is purchased for £2.5 million. There is no headlease and none of the flats is subject to a long lease.
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 20 flats. The freehold is treated as if it were interests in the individual dwellings. The chargeable consideration divided by the number of dwellings is £125,000. This is below the normal 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.
The freehold of a block of 10 flats is purchased for £1.4 million. There is no headlease 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.
Applying the treatment
Now we have identified the treatment here are a few ways that you can apply it to your tax pains.
As they say it is all in the planning so before you purchase a property and pay the relevant SDLT it is worthwhile considering the above to see if you can reduce the liability.
If you are looking for an accountant or thinking of changing your current accountant because they do not understand property investing then please book an “Initial Free Consultation” on the below website: http://www.optimiseaccountants.co.uk/event/initial-free-consultation-2/
Please ensure that you check out our latest webinars and courses http://www.optimiseaccountants.co.uk/events/