Stamp Duty Land Tax and the ‘Mini-Budget’

On 8 July 2020, as Chancellor, Rishi Sunak released a series of measures to kickstart the economy in the wake of the COVID-19 pandemic, he explained the UK's dependency on the housing market for jobs and its contribution to the economy.

As a result, Sunak announced a Stamp Duty Land Tax (“SDLT”) holiday applicable to the purchase of your main residence up to £500,000, with significant reductions for those purchasing second homes.

What do the temporary Stamp Duty Land Tax changes mean for me?

Whilst it appeared at first that this would have an impact mostly on those purchasing their main home or a replacement residence, the Government Guidance has now revealed an increase in the 3% threshold for second property purchases from £125,000 to £500,000. This means that the impact of the temporary changes on your transaction will depend on which of the following scenarios apply to you:

Your main residence

If you are a first-time buyer or selling a property to replace it with another, which will become your main residence, then SDLT rates are calculated on a sliding scale. Here is how they have changed:

Before 8 July 2020

On or after 8 July 2020

Up to £125,000

0%

Up to £500,000

0%

£125,000 - £250,000

2%

£500,001 - £925,000

5%

£250,001 - £925,000

5%

£925,001 - £1,500,000

10%

£925,001 - £1,500,000

10%

£1,500,000

12%

£1,500,000 +

12%

 

 

 

Examples:

If you were purchasing your main residence for £485,000 before 8 July 2020 the SDLT payable would have been £14,250. If you are due to complete your purchase on or after 8 July, then the SDLT liability is reduced to £0.

Whilst it appears this benefits those purchasing beneath the £500,000 threshold, those purchasing for in excess of £500,000 are also able to benefit

If you were purchasing your main residence for £750,000 before 8 July 2020 the SDLT payable would have been £27,500. However, if you are due to complete your purchase on or after 8 July 2020, then the SDLT liability is reduced by £15,000 to £12,500.

Second homes and investment properties

Since March 2016, if you were not replacing your main residence, but purchasing a second home or purchasing a buy-to-let investment property, you would have been liable for a 3% SDLT surcharge (subject to a complex set of rules).

Whilst the surcharge still remains in place, the bands to which these percentages apply have been altered.

Before 8 July 2020

On or after 8 July 2020

Up to £125,000

3%

Up to £500,000

3%

£125,000 - £250,000

5%

£500,001 - £925,000

8%

£250,001 - £925,000

8%

£925,001 - £1,500,000

13%

£925,001 - £1,500,000

13%

£1,500,000

15%

£1,500,000 +

15%

 

 

 

These revised rates also apply to property purchases by corporate entities.

Examples:

If you were to have purchased an investment property for £485,000 before 8 July 2020 then your SDLT liability would have been a total of £28,800. However, if completion is due to take place on or after 8 July 2020, then this is reduced by £14,250 to £14,550.

The 5% band for higher rate properties has been removed entirely. However, if you were to have purchased a second home for £750,000 before 8 July 2020, then the SDLT payable would have been a total of £50,000. However, a purchase completing on or after 8 July 2020 sees a £15,000 reduction to £35,000.

New leasehold sales and transfers

If you purchase a new lease, then the SDLT you pay depends on the premium payable and any rent which is due.

Prior to the temporary changes, if the Net Present Value (“NPV”) of the rent was more than £125,000, the Buyer would pay SDLT on the rent and on the premium paid for the lease (the purchase price). However, in this instance, the tax is calculated at a flat rate of 1% of the amount of the NPV over the threshold.

For purchases completing on or after 8 July 2020, the threshold has now been increased to £500,000 before the 1% flat rate will apply.

For how long could I benefit from these SDLT changes?

The measures were brought in with immediate effect on 8 July 2020, therefore if completion of your purchase is due to take place on or after 8 July you will benefit from the temporary revised SDLT rates set out above. The temporary changes will be in force until 31 March 2021, at which time they will revert to the rates which have been in place since March 2016.

For more guidance on what the temporary changes could mean for you and a free conveyancing quotation, to include a SDLT calculation based on the temporary changes, please contact: Louise Peters, Partner or Ellie Wonnacott, Solicitor in Michelmores' Residential Conveyancing team.

This article is for information purposes only, and is not a substitute for legal advice, and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.