On 8 July 2020, Rishi Sunak announced that Stamp Duty Land Tax (SDLT) will be cut in a bid to boost the housing market and purchaser confidence. Reduced rates of SDLT will immediately apply to the purchase of residential properties in England and Northern Ireland from 8 July 2020 until 31 March 2021 inclusive (the ‘qualifying period’).
Full details are yet to be made clear but we set our initial understanding of these changes.`
The reduced SDLT rates for the purchase of residential property by individuals are as follows:
|Property or lease premium or transfer value||SDLT rate|
|Up to £500,000||0%|
|The next £425,000 (the portion from £500,001 to £925,000)||5%|
|The next £575,000 (the portion from £925,001 to £1.5 million)||10%|
|The remaining amount (the portion above £1.5 million)||12%|
Separate tax regimes apply in respect of properties purchased in Wales and Scotland.
The rates for the acquisition of commercial and mixed-use property have not changed.
What about purchases by companies?
The reduced rates will also benefit companies when buying residential property worth less than £500,000; or of any value where the relief conditions from the corporate 15% SDLT charge are met.
However we expect the 3% surcharge rate for purchases of residential properties by a company will still apply on top of the rates shown above.
What if contracts have been exchanged before 8 July 2020 but completion is expected to take place during the qualifying period?
In most cases we expect the reduced rates will apply to transactions completed during the qualifying period, regardless of the date of exchange. This is because SDLT liability arises on the ‘effective date’ of a transaction. The effective date is commonly the day of completion.
However, there is an exception where the effective date for SDLT purposes is the date of ‘substantial performance’ if that is prior to completion. If the date of ‘substantial performance’ of the transaction has taken place before 8 July 2020, the reduced rates will not apply. ‘Substantial performance’ means:
- a substantial amount of the purchase price is paid (or if the only consideration is rent, when the first rent payment is made);
- the purchaser takes possession of the property; or
- rent (e.g. from a sublease in respect of the property) is received by the purchaser.
What if contracts will be exchanged during the qualifying period but completion is expected after 31 March 2021?
We expect the reduced rates will not apply to a transaction if completion takes place after 31 March 2021, unless the date of ‘substantial performance’ falls within the qualifying period. After 31 March 2021 the previous rates will apply.
Do the reduced rates apply to buyers of second homes?
Yes, but the 3% surcharge rate for purchases of additional residential properties will still apply on top of the rates shown above.
Do the reduced rates apply to overseas buyers?
Yes, the reduced rates will apply to overseas buyers too.
The government has confirmed that overseas buyers will be treated differently for SDLT purposes from 1 April 2021 with the introduction of a 2% surcharge. This does not affect the current SDLT rates for overseas buyers.
Is there anything else that should be considered?
Remember, even if the reduced rates apply, in most cases there is still a requirement to send an SDLT return to HMRC and pay any tax due within 14 days of completion. HMRC may charge you penalties and interest if you do not take both of these steps.