This month we are trying to bring clarity to the minefield that is Stamp Duty Land Tax (SDLT) amidst the significant and complicated recent changes.
We have devised a flow chart to help buyers find a path through the minefield, we discuss the new rules and highlight some potential savings for buyers.
The principal change includes the well-publicised additional 3% on second homes. If you own more than one house on the date of the transaction of the second, you now have to pay an additional 3% SDLT, unless it is replacing your principal house. To put this into perspective if you buy a house at £2m, you would pay £153,750 in stamp duty but if it is your second home you now have to pay £213,750.
In addition, the SLDT for the mixed use rates (farmland, commercial property, forestry or 6 or more houses in a single transaction such as an estate purchase) has increased from 4% to 5%. The increased 1% is clearly a burden but the good news is that the additional 3% for second homes does not appear to apply to the mixed use rates.
For buyers of larger properties, perhaps with a cottage or two, an annexe or a flat above the garage, the multiple dwelling relief may be the best option. The SDLT is worked out by adding the total value of all of the residential elements of the property and dividing the total by the number of houses. The SDLT is then worked out for the average house price and multiplied back up by the number of houses. (So if you bought a house with 3 cottages, the house being worth £1,400,000 and the 3 cottages £200,000 each, the total value of the residential elements is £2m, divide by 4 gives £500,000. SDLT on £500,000 is £15,000, multiply this by the 4 units gives £60,000. Unfortunately the additional 3% (£60,000) rule applies under the second home ruling giving a total of £120,000 (still a saving of £33,750 on the example given above and saving £93,750 for a second home).
SDLT is a complicated area of tax that as a result of the recent changes is largely untested with no published case studies to rely upon. Specialist professional advice must be sought before you fill in your SDLT return.
For further information, please do contact us.