On 23rd September 2022, Chancellor Kwasi Kwarteng announced significant adjustments to the threshold at which home buyers will start paying Stamp Duty Land Tax (SDLT).
According to the Treasury, the Chancellor's measures will raise household consumption, boost consumer confidence, and will help thousands of businesses that depend on the real estate investment market. The aim of these immediate and permanent tax changes is to encourage investment, and, most importantly, to help first-time homebuyers get on the property investment ladder.
What is stamp duty?
When a property acquisition in the UK is completed, Stamp Duty Land Tax (SDLT), a transaction tax based on the property sale value, must be paid to His Majesty's Revenue and Customs (HMRC). Both leasehold and freehold property transactions are subject to SDLT.
The changes, which are effective as of 23rd September 2022, only apply to acquisitions of primary residences in England and Northern Ireland. In Scotland and Wales, there are different tariffs.
What are the key changes?
The nil rate threshold from which SDLT becomes payable has doubled in respect of residential property transactions, from £125,000 to £250,000.
Furthermore, if you are a first-time buyer of a residence not exceeding £625,000 in value you will no longer be required to pay SDLT on that part of the purchase price up to and including £425,000. This targeted first-time buyer tax relief provides such buyers with £425,000 at nil duty with 5% SDLT being payable on anything in excess of that threshold for such properties.
The new rates for England and Northern Ireland are:
0%: £0 – £250,000 (£425,000 for first-time buyers)
5%: £250,001 – £925,000
10%: £925,001 – £1.5 million
12%: The remaining amount (the portion above £1.5 million)
What does this mean for buyers?
For a property purchased for £250,000, there will be no SDLT to pay. Prior to the changes, £2,500 SDLT would have been payable.
If a property is purchased for £450,000, there will be £10,000 SDLT to pay. Prior to the changes, £12,500 SDLT would have been payable.
If a property is purchased for £650,000, there will be £20,000 SDLT to pay. Prior to the changes, £22,500 SDLT would have been payable.
If the buyer is a first-time buyer, the initial zero rate threshold will be increased to £425,000 in each of the above scenarios.
What are the implications for investors or those buying a second home?
The changes will also affect anybody looking to buy an investment property or second home, however, the requirement to pay a second house SDLT surcharge (3% surcharge on each stamp duty band rate) will still be in effect.
What happens if you have already exchanged contracts?
Even if you have previously exchanged contracts, you will still benefit from the changes because SDLT is due at the point of completion or the effective date of completion. SDLT must be paid within 14 days of completion, otherwise, interest and penalties will apply.
What about non-UK residents?
The 2% non-UK resident SDLT surcharge which came into effect in April 2021 still applies to the purchase of residential properties. This surcharge applies in addition to the usual residential rates, additional dwelling surcharge, and other related charges, exemptions and relief.
According to HMRC, who is a non-UK resident buyer?
Individual: A buyer is “UK resident” for the purposes of the 2% surcharge if they have remained in the UK for at least 183 days in a continuous 365-day period beginning 364 days before the effective date of the transaction (the “backward-looking test”) and ending 365 days after the effective date (the “forward-looking test”). The buyer only has to satisfy one of those tests, it does not need to meet both.
Company or trustee: More complex rules apply to determine whether a corporate or trustee buyer is non-resident, in this case seeking expert guidance may be prudent.
How 3CS can help
For legal help and advice with any commercial or residential property matter, please get in touch with your usual 3CS contact.