Temporary rate reduction

Presenting the Summer Economic Update on 8 July 2020, the Chancellor, Rishi Sunak, announced a much-anticipated reduction in residential stamp duty land tax (SDLT). Where completions take place between 8 July 2020 and 31 March 2021, the residential SDLT threshold is raised to £500,000 from £125,000.

The reduction will also benefit those buying second homes and investment properties who will pay 3% on the first £500,000 of the consideration where the purchase price is at least £40,000.

First-time buyers will only feel the effects where the consideration tops £300,000; prior to 8 July 2020, first-time buyers paid no SDLT on the first £300,000 of the consideration.As a result of the reduction, the rates of residential SDLT in England from 8 July 2020 to 31 March 2020 are as set out in the table below. 

Reductions have also been announced to the residential rates of Land and Buildings Transaction Tax (LBTT) in Scotland and Land Transaction Tax (LTT) in Wales.

The reduction only applies to residential property rates; the rates for commercial and mixed properties are unchanged.

It is therefore important to be clear whether a property is a residential property or not.

For SDLT purposes a residential property is defined (in FA 2003, s. 116) as a building used or suitable for use as:

  • a dwelling, or is in the process of being constructed or adapted for use as a dwelling;
  • the garden or grounds of such a building, including buildings of structures on such land;
  • an interest or right over land that subsists for the benefit of such a building or land (for example, a right of way)

The test is at the effective date of the transaction.

It should be noted, particularly as regards garden and grounds, the test of what counts as residence for SDLT is not the same as that for CGT, and a separate sale of a garden (but not a subsequent sale) will be regarded by HMRC as residential property for SDLT irrespective of whether it would qualify for main residence relief for CGT purposes.

Care should also be taken when purchasing a property is a dilapidated state; as shown in the Tribunal Decision is P N Bewley Ltd v HMRC [2019] TC06951, what HMRC may consider to be a ‘dwelling’ may differ from what a lay person may regard as being suitable for use as dwelling.

Prior to the rate reduction, it was in HMRC’s interests for SDLT to be payable at the residential rates; the arguments and case law used then in their favour may help the taxpayer now.

While the reduction applies, it makes sense for completions to take place prior to 1 April 2021. However, the reduced rates only apply to residential properties defined as such for SDLT purposes

Property SDLT

SDLT Higher Rate

Home selling deadline relaxed

Second homes have been subject to a 3% SDLT surcharge since April 2016, and similar surcharges apply in Wales (3% LTT) and Scotland (4% LBTT). These surcharges are not supposed to apply to the purchase of a main home, but purchasers can be caught out if they buy a replacement main home before completing the sale on their old home.

Where the buyer holds two or more homes at the end of the day of completion the surcharge applies. But this surcharge can be reclaimed if the old home is sold within a specified window, set at three years for property purchases in England, Wales and Northern Ireland, but just 18 months in Scotland.

As the UK property market was effectively frozen due to the coronavirus shut-down many sales fell through and some buyers have been left holding two homes for longer than expected. The UK and Scottish Governments have reacted by extending the window for sale of the old home in slightly different ways.

Scottish home-owners can enjoy a limited extension to the window for sale to three years, where the new home was purchased between 24 September 2018 and 24 March 2020. This is legislated for in the Coronavirus (Scotland) (No.2) Act 2020, Schedule 4 part 5.

Home-owners in England or Northern Ireland have been given an open-ended flexibility for the sales window where the new home was purchased on or after 1 January 2017. If the buyer can show that exceptional circumstances applied to prevent the sale of the old home, such as the covid-19 pandemic, the sales window for the old home is extended.

The taxpayer will be expected to complete the sale of their old home as soon as reasonably possible after the exceptional circumstances have ceased. HMRC will only make a judgement on whether the exceptional circumstances condition applies once the former home is sold and a SDLT refund application has been submitted.

The Welsh Government has made no similar adjustment to the rules for the LTT surcharge.


Reclaim SDLT and LBTT

Since 1 April 2016 a supplement of 3% SDLT has applied to purchases of second and additional homes in England, Wales and Northern Ireland. This supplement was copied in Scotland and became the additional dwelling supplement (ADS) for LBTT, also set at 3% of the entire consideration for properties costing £40,000 or more. A similar 3% supplement applies to LTT in Wales from 1 April 2018.

However, the rules for the SDLT supplement and the ADS for LBTT do not mirror each other, as there are different conditions for relief from the 3% supplement in each country.

Scotland has just amended its law to provide relief from ADS where a couple buy a home together to replace their main home, but their former home was held the sole name of one of the individuals. Taxpayers who fall into this category, and who purchased the replacement home on or after 1 April 2016, can now apply for a refund of the additional LBTT paid.

There are a number of circumstances in which refunds of the SLDT supplement can be reclaimed as set out in the SDLT manual under condition D. Unfortunately, the SDLT manual is not written in plain English and the convoluted conditions and exceptions are difficult to follow. We can help you with questions in this area.

It is worth checking if a refund of the SDLT supplement is due, as it must be claimed within 3 months of the sale of the previous main residence or within 12 months of the filing date of the land transaction return, whichever comes later. Another point to check is whether the property acquired is 100% residential, as the supplement only applies to residential property.

Revenue Scotland: relief from additional LBTT charge

SDLT supplement condition D

Claim refund of SDLT