Stamp Duty Holiday - How Does It Work?

The Chancellor of the Exchequer, Rishi Sunak, announced temporary Stamp Duty Land Tax (“SDLT”) thresholds that apply to residential homes.

Minimum Threshold Increased to £500,000 - up from £125,000

The minimum threshold was increased to £500,000.00 until 31 March 2021.  What this means is that anyone buying a home from July 8th 2020 until the end of March 2021 will not have to pay SDLT. 

Before the SDLT holiday, the residential SDLT thresholds were;

• 2% of property value between £125,001 to £250,000;

• 5% when between £250,001 to £925,000;

• 10% when between £925,001 to £1.5 million; and

• 12% when the value is above £1.5 million.

‍With the SDLT holiday, the new rates are as follows;

• 5% of the property value between £500,001 to £925,000;

• 10% of the property value between £925,001 to £1,500,000; and

• 12% of the property value above £1.5 million.

Here is an example of how the new rates work.

In January 2021 you buy a house for £625,000. The SDLT you owe will be calculated as follows:

  • 0% on the first £500,000 = £0
  • 5% on the remaining £125,000 = £6,250
  • total SDLT = £6,250

If you want to calculate the SDLT due you can use Government SDLT tax calculator here;

https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/holding

How does this change things for first time buyers? Does it help them and therefore help stimulate the property market?

First time buyers don’t normally pay SDLT on the first £300,000 but they do pay 5% between £300,001 to £500,000.  Therefore, this can be a saving of up to £10,000 for first time buyers. A significant reason to complete a property purchase before March 31st 2021.

‍To be a first time buyer you’re eligible if you and anyone else you’re buying with are first-time buyers.

If the price is over £500,000, you follow the rules for people who’ve bought a home before.

An Important Tip For Buyers of Shared Ownership Homes.

If you are buying a shared ownership home, it’s important you pay the SDLT on the Full Market Value of your new home. The reason for this is that it will still be £0 because the home is less than £500,000 and when you buy a bigger share later, then you won’t have to pay SDLT after the March 31st 2021 deadline because you have already paid it in advance.

What about Buy to Let and Holiday home purchases or buying a property through a company?‍

Second home and holiday homes are usually subject to a higher rate of 3% SDLT on top of the normal rates on properties over £40,000. This is known as the Stamp Duty Surcharge.

If you set up a company to buy residential property, you will also pay a higher rate generally 15% for properties of £500,000 or more.

The new rules mean that you only have to pay the higher rates on properties £500,000 or higher.

To calculate the SDLT payable for purchasing a property through a company you can use the calculator on the Government website here;

https://www.gov.uk/guidance/stamp-duty-land-tax-corporate-bodies

One thing to be aware of is that if you own a property abroad, for example a ski chalet in the Alps, this will be taken into account if you purchase another property e.g. a first time buyer home in Reading.  Your home in Reading could well see the 3% extra SDLT levied.

What About Non Residential Properties or Land? Is there a SDLT holiday?

Until March 31st 2021 there are reduced levels of SDLT on non-residential, e.g. shops/offices or mixed land use, e.g. forest and these are as follows;

Up to £150,000    0%

£150,001 - £250,000    2%

From £250,001    5%

Can I claim a refund for SDLT I have already paid?

The only type of refund for SDLT is for particular instances where the law says you are eligible. This may be the case if you bought a main residence and did not sell your previous residence, but then sold your prior residence within 36 months.

To make a refund claim you will have to complete an SDLT return and send it to Her Majesty’s Revenue and Customs.

You cannot claim a refund if you have already paid SDLT in normal circumstances.

How Can I Take Advantage of the SDLT temporary reductions?

The best way to save yourself money is to buy any property before the March 31st 2020 deadline to take advantage. This means getting a good conveyancing team on board; estate agent, surveyor, mortgage company, solicitor and ensuring they all work together to ensure a smooth and efficient transaction where the exchange of contracts takes place before March 31st. 

In general, the better you plan, the more chance you have of getting your transaction through in time.

Call us to get your conveyancing process underway, whether you are buying, selling or both, we can help you.

 

Published on 12/11/2020

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