Since December 2014, SDLT on residential properties has been calculated using the ‘slice’ basis of tax; in other words, the rates are applied to the portion of the property value that falls within each band. A 3% surcharge (or Higher SDLT rate) applies for acquisitions of additional residential dwellings and acquisitions by companies.
The standard – pre-holiday SDLT rates are as follows:
However, since the chancellor’s announcement of the SDLT holiday, the following rates will apply to land transactions until 31 March 2021:
The temporary relief period increases the 0% rate band to £500,000 for properties purchased in England and Northern Ireland. Anyone purchasing a residential property will benefit from the increased thresholds, except for companies purchasing single properties valued over £500,000; where the special 15% flat rate will apply instead.
Relief for first-time buyers is disapplied during the temporary relief period; instead, relief is simply obtained by applying the increased threshold.
This First-time buyer relief applied a special rate for first-time buyers purchasing property for £500,000 or less. The first £300,000 was exempt and the balance between £300,000 and £500,000 was taxed at 5%. Therefore, in practice first-time buyers will be able to save up to £10,000 during the holiday period.
Multiple dwellings relief
Multiple dwellings relief (MDR) can be claimed if a purchaser is buying multiple properties in one lot or if there is a secondary property in the same building or grounds that is suitable as a dwelling in its own right (such as an annex or granny flat).
A claim for MDR will, in effect, reduce the SDLT liability to that which would be paid if the properties were purchased separately; in other words, providing access to the multiple use of the lower rate charging bands. However, it is subject to a 1% de minimis rule so that the SDLT under an MDR claim will always be at least 1% of the total consideration.
In normal times, a claim for MDR would always result in a lower SDLT liability. However, care will be required during the SDLT holiday period because, in some cases, it will be more beneficial to claim the standard rates and make use of the increased 0% threshold rather than claim MDR (as a result of the application of the 1% rule).
Non-residential and mixed-use properties
The SDLT holiday will only apply to residential property; purchases of non-residential property or mixed-use property will be taxed in the same way as before – in other words, by applying the following rates:
Position from 1 April 2021
On 1 April 2021, the holiday period will no longer apply, and the standard rates and 3% rates will revert for residential transactions.
Although the measures have been widely welcomed, It remains to be seen whether the government will achieve its desired effect to stimulate the property market and generate additional revenue to use elsewhere in the economy. Many economists predict a significant decrease in property values by March 2021 as a result of uncertainties caused by the ongoing pandemic and Brexit; buyers may therefore have to weigh up immediate SDLT savings against a potentially significant drop in house prices.