Relevant to tax year 2020/21
How do UK landlords reduce Stamp Duty Land Tax?
You may be interested in our main article “buy to let tax for UK landlords”. This article discusses all the different types of tax that you need to be aware of as a UK landlord.
We have written an article that shows what Stamp Duty Land Tax is and how it is calculated. You may wish to calculate and save the SDLT liability.
Do you pay Stamp Duty Land Tax on land that you buy?
Stamp Duty Land Tax is charged as a percentage of the amount given for the property.
You pay SDLT when you buy a property or land. You may also pay SDLT when a property is transferred to you. This is whether or not the transaction involves payment of money and/or non-monetary consideration. Monetary consideration includes goods, services or the assumption of financial liabilities. The total amount on which SDLT is payable is known as the ‘chargeable consideration’.
Stamp Duty Land Tax is usually paid to HMRC within 30 days of the property purchase. Conveyance solicitors will usually request the payment of Stamp Duty Land Tax as part of the completion process.
Obtaining an inherited property – mitigate the issue of 3% SDLT surcharge for three years
If you inherit a property through a trust the 3% SDLT surcharge may be ignored on this and subsequent property transactions. This is for the period of three years from the date you inherited property. This is provided that [Para 16(2)] provided that::
- The beneficiary becomes a joint owner of the interest by inheritance
- Their interest, combined with any spouse or civil partner’s interest does not exceed 50% of the major interest bequeathed
Are there ways to avoid the 3% Stamp Duty Land tax surcharge?
- Parents buying properties for their children can set up trust structures so the child is a beneficiary of a trust, meaning they won’t have to pay the extra tax.
- Landlords who expect to miss the deadline but don’t want to abandon the sale are negotiating with sellers to arrange to split the extra tax cost between them.
- Investors who complete transactions now to beat the tax change are allowing sellers to stay living in the property until they find a new home.
- Move into one of your property investments and announce that it is your primary residence/home. This may then be sold in the future once you are tired of the property. This will have two benefits 1) you will reduce Capital Gains Tax (CGT) on the asset disposal and 2) mitigate the 3% SDLT charge. Please remember to change the mortgage before moving back into the property.
How is the 3% Stamp Duty Land tax surcharge calculated?
If you buy a property for £90,000 then you will pay 3% on the £90,000 and will cost you £2,700 in SDLT.
If you purchase a property for £300,000 the new SDLT implications are a lot more significant.
£0 (£0 – £125,000 at 0%)
£3,750 (£125,000 to £250,000 at 3%)
£3,750 (£250,000 to £300,00 at 5%)
This gives rise to a SDLT charge of £7,500
£9,000 = (£300,000 at 3%)
Total = £16,500
You can see from this example how a property valued at £300,000 will now be liable to a SDLT charge of more than double the normal cost if it is a second property.
Stamp Duty Building a new house
Stamp Duty Land Tax is based on non-residential rates when building a new house, per HMRC’s website. This is because there is not a residential building on the land at the point of purchase. This also means that the 3% Stamp Duty Land Tax surcharge does not apply. Again, because it is not residential at the point of purchase. This makes it worthwhile for investors and property developers to consider the option of “build to rent”
Reduce Stamp Duty Land Tax by purchasing a mixed use or commercial property
John buys a shop with a flat above and pays £160,000. He thought that there were two properties and that he could divide the value between the residential element and the shop. This, in his mind, would mean there would be no SDLT to pay, happy days.
Sadly, upon purchasing the property he gets a nasty surprise when his solicitor tells him about an SDLT charge on the £160,000 purchase price — of 1%, which is £1,600.
Let’s look at another example. Let’s say John buys a freehold commercial property for £275,000. In this case the SDLT he owes is calculated as follows:
– 3% of £275,000 = £8,250
– Total SDLT = £8,250
Stamp Duty Land Tax mitigated through a gift of property
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.
Reduce Stamp Duty Land Tax considerations when going through a divorce
Certain transactions made in connection with the ending of a marriage or a civil partnership is exempt from SDLT.
These transactions are those made between the parties in the marriage or civil partnership as a result of
- certain types of a 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.
Stamp Duty Land Tax considerations on death
A transaction following a person’s death that varies a disposition. This is whether it is effected by will or under the law relating to intestacy. It 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.