Everybody is talking about the Chancellor’s stamp duty land tax (SDLT) announcement earlier today (well, everybody in the property and tax worlds anyway). The nil rate band is increased, with immediate effect, from £125,000 to £500,000 which means that first time buyers will only start paying tax on amounts above £500,000 when purchasing residential property, and almost everyone buying property above £125,000 should see a reduction in the SDLT they pay. However, this is a temporary change lasting until 31 March 2021 and is being referred to as a ‘stamp duty holiday’ in the media.
This will apply to first time buyers, those who already own property, property investors and certain purchases by companies. The Chancellor said that “The average stamp duty bill will fall by £4,500. And nearly nine out of 10 people buying a main home this year, will pay no stamp duty at all.” This is a significant development, as the ‘holiday’ will last for just over eight months, and all purchasers of residential property stand to benefit in some way from this measure.
First time buyer relief will not apply during this period because it is completely replaced by the more generous, albeit temporary new rules. It is important to note that the additional 3% surcharge (known as higher rates) does still apply. For example, if you already own more than one residential property (and are not replacing your main residence), then you will benefit from a reduced SDLT rate charge but will still have to pay 3% SDLT on the first £500,000 of the purchase price (and 8% on the next £425,000 and so on in the usual way).
This is a welcome and pragmatic reaction to the current market conditions by the Chancellor. It is hoped that this announcement will help to further stimulate the housing market as it recovers from the recent disruption. The reduced rates will cease to apply on 1 April 2021. Interestingly, this is the date the government had previously announced as being the date that an SDLT surcharge for overseas buyers would take effect - it will be interesting to see whether that proceeds as planned.
De-envelopingOn a slightly different angle, many property owners hold residential properties in companies that now face the Annual Tax on Enveloped Dwellings charge, and further offer no IHT benefit since changes brought in in 2017. However, these structures have remained in place because the costs of de-enveloping can be very high, potentially triggering both capital gains tax and SDLT, if borrowing is involved. It appears that the SDLT holiday announced today would also apply in this situation, which could reduce the SDLT payable on a de-enveloping by up to £15,000. With property prices having fallen in some cases, and today’s announcement, it is certainly worth revisiting any de-enveloping ideas/plans that have been put on hold and number crunching afresh (and obtaining fresh valuations) to take advantage of an opportunity to de-envelope if appropriate.
For more information on SDLT, please listen to our podcast 'SDLT Holiday – points to watch out for'.
Stamp Duty Land Tax: temporary reduced rates