Guest Editor – Stamp Duty Land Tax: pay less when buying more?

This month’s guest blog post comes from Marc Dorsett, Tax Director at Gepp Solicitors

Marc discusses Stamp Duty Land Tax for those with second dwellings, the recent changes to legislation and the potential savings to be made with some careful planning.

Stamp duty land tax (SDLT) is a curious tax. Stamp duty on house purchases dates back to the 1600s in spirit but there have been some changes along the way to get to where we are today. It is now a land transaction tax rather than a stamp duty and the current system was introduced by the Finance Act 2003.

Recent years have seen a fair amount of tinkering with the SDLT legislation. George Osborne, in particular, brought in many of the changes that affect property purchases in quite a large way. One of the biggest changes took effect from April 2016 and this was the higher rate for additional dwellings (HRAD), aka the 3% surcharge. HRAD applies to purchases by individuals (and certain trusts) of additional residential properties. It also applies to purchases of residential property by companies and most trusts, regardless of the number owned.

As one expects from such broad changes to legislation, the rules needed to be amended so as not to penalise certain groups that were not supposed to be targeted. In November 2017 there were some key amendments made that helped clarify the position.

Some of those caught by the April 2016 surcharge, prior to November 2017, were individuals who bought a property with a granny flat. People found that they were unfairly paying an additional 3% SDLT when they bought a house which had an annex attached or in the grounds. They had no other property but the 2016 rules applied as more than one dwelling was acquired.

November 2017 altered this position so that, under certain circumstances, a property being purchased with an annex would not automatically trigger the surcharge.

However, this can be taken further due to an often overlooked relief, which has actually been about since 2011. Multiple Dwellings Relief (MDR) works by reducing the SDLT payable on a purchase where there is more than one dwelling purchased in a single or linked transaction. Ordinarily, the fact that two dwellings are being purchased at once will automatically trigger the HRAD. MDR works by applying the SDLT rates to the average purchase price and then multiplying this figure by the number of dwellings. This means that the overall tax rate is lowered. The minimum rate of tax that applies with an MDR claim will be 1% and the amount due will never be less than this.

But, a purchaser of a property with a qualifying annex (granny flat or converted garage, for example) can claim MDR without the HRAD applying, if certain criteria are met.

The rules and conditions that are required to be met are complex but, as a general guide, the annex needs to be able to be lived in independently of the main dwelling. It is important that the positon is reviewed properly and carefully.

It is the position at the date of completion that determines if a claim can be made. There is a clawback of relief if anything happens in a three year window after purchase that, had it occurred just before completion, means MDR would not have been available.

Even with the current SDLT holiday in place, the savings can be impressive. On a property costing £1m, the SDLT saving with an MDR claim is nearly £19k. On a £2m property, the saving is in excess of £81k.

In an ideal world, the claim for MDR would be made at the point of purchase. However, as mentioned above, the rules are so complex now and a conveyancer may not be aware of them so a claim may not have been made. There is a window of 12 months from the SDLT return filing date in which to amend the return and claim MDR. Any claim outside this period will not be entertained by HMRC.

If in doubt, talk to an SDLT specialist. The Gepp Solicitors tax team would be pleased to discuss your questions and advise on the next steps. Please contact Marc Dorsett on [email protected] or 01245 228146.