Stamp Duty Land Tax– How do I reduce it?
Stamp Duty Land Tax (SDLT) applies to the acquisition of land and buildings, whether residential or commercial, and is charged at a set percentage dependent on the purchase price of the property. Many taxes are only relevant to one section of a business, but SDLT applies to all – employees and employers alike. Whilst you may not be able to avoid paying SDLT, the key is to make sure that you don’t pay any more than necessary.
Relief for first-time buyersFirst time buyers’ relief (FTBR) was introduced by the government in November 2017 and has resulted in £804M tax relieved to date.
Under FTBR, any residential property purchases of £300,000 or less can be fully relieved from SDLT, and then only 5% is payable on value above £300,000, up to a limit of £500,000.
FTBR only applies where the following conditions are met:
- The purchasers have never previously owned a property or owned an interest in a property.
- The purchasers intend to occupy the property as their only or main residence.
- The property is being purchased for £500,000 or less. For any first-time purchase above £500,000, the standard rates apply.
The granny flat reliefMany houses incorporate an annexe, or part of a property, which is self-contained and can be used for elderly relatives etc. In these circumstances, it may be possible to significantly reduce the SDLT payable by regarding this as a separate dwelling.
The rules however, are complex and it is important that you seek professional advice regarding this, as every circumstance is unique and would need a thorough review.
This can also be adjusted retrospectively, and a refund received from HMRC, providing the claim date is within 12 months from the filing deadline for the SDLT return (note that the filing deadline for the SDLT return has recently reduced from 30 days to 14 days after completion of the purchase).
Stamp Duty on the purchase of sharesMany are unaware that Stamp Duty (from which SDLT is derived) is chargeable on the purchase of shares in a company. Whilst this is at a very low rate of 0.5%, this still means that, for example, the purchase of shares worth £5M could trigger a SD charge of £25,000.
This can also be triggered in the event of a company restructure, but often there are solutions which can reduce the liability to nil.
- If you are a first-time buyer, try to negotiate your purchase value down to £500,000 or below. A purchase of £500,000 will cost £10,000 in SDLT, whereas a purchase of £500,001 will cost £15,000 in SDLT.
- If you have moved to a new house within the last 13 months (or have a house purchase in mind), do you have a granny flat or annexe within your property? Please feel free to contact us to discuss your circumstances.
It is important to note that Stamp Duty Land Tax has been replaced in Scotland and Wales by ‘Land and Buildings transaction tax (LBTT)’ and ‘Land Transaction Tax (LTT)’ respectively. Whilst these remain broadly the same as SDLT, there are some differences in the rates and interpretation of the law. It is important to note that LTT (Wales) does not currently include any relief for first time buyers.