The Stamp Duty Holiday is due to end on 31 March 2021. However, the Chancellor is under enormous pressure to extend the holiday because of the high number of residential buyers who will be unable to complete their purchase before the planned end of the stamp duty holiday due to log-jams in the property market and conveyancing delays. The end of the holiday may also lead to a fall in residential property values leaving buyers who purchased homes during the stamp duty holiday at prices inflated by the SDLT savings in negative equity.
What is Stamp Duty Land Tax?
Stamp Duty Land Tax is a tax on the acquisition of land in England and Northern Ireland. Scotland charges Land and Buildings Transaction Tax and Wales charges Land Transaction Tax, instead of SDLT. SDLT is charged on land transactions in England and Northern Ireland according to the price paid or in some cases the market value. A land transaction is any acquisition of a chargeable interest. This includes not only freeholds and leases, but also interests, rights and powers over land other than exempt interests such as mortgages and licenses to use land.
What is the Stamp Duty Holiday?
The SDLT Holiday is a temporary increase in the Nil Rate Band of Stamp Duty Land Tax on residential property in England and Northern Ireland from £125,000 to £500,000 from 8 July 2020 to 31 March 2021. This results in a stamp duty saving of up to £15,000.
First-time buyers and others pay the following rates on buying a residential property on or before 31 March 2021:
| £ | % |
|---|---|
| Up to £500,000 | 0% |
| On the portion from £500,001 to £925,000 | 5% |
| On the portion from £925,001 to £1.5m | 10% |
| Above £1.5m | 12% |
Note that the 3% stamp duty surcharge for additional residential properties (or one or more residential properties acquired by a company) applies on top of the holiday rates, so the purchase of an additional home attracts a 3% stamp duty surcharge on the first £500,000 of property. This still results in a saving because the first £500,000 remains exempt from the ordinary rates:
During the stamp duty holiday the following rates apply if the 3% surcharge is payable:
| £ | % |
|---|---|
| Up to £500,000 | 3% |
| On the portion from £500,001 to £925,000 | 8% |
| On the portion from £925,001 to £1.5 million | 13% |
| Above £1.5 million | 15% |
Note also that from 1 April 2021 the non-UK resident stamp duty surcharge will apply at a rate of 2% above the residential rates (including the higher rates for additional dwellings and companies, the 15% rate and the first-time buyers’ rates) on residential property bought by non-residents.
This is in addition to the existing 3% higher rates surcharge which most foreigners already pay because they already own one or more residential properties overseas. So, SDLT for overseas buyers will be at a top rate of 17% of the purchase price. This will be either a flat rate of 17% in the case of the existing 15% higher rate on companies buying a dwelling or in other cases, on the top slice of the purchase price above £1.5m.
Can You Lock-In to the Stamp Duty Holiday?
Yes, you can. Under the Stamp Duty Land Tax (Temporary Relief) Act 2020 any purchase whose effective date occurs before 1 April 2021 qualifies for the stamp duty holiday rates. So, if you can arrange with your seller and conveyancer to make sure that the effective date of your purchase falls on or before 31 March 2021 then you get the holiday rates.
The “effective date” normally means the completion of your purchase by the conveyance of the property to the purchaser. However, an anti-avoidance rule means that the effective date will be earlier than completion when there is “substantial performance” of the purchase contract ahead of completion. This can occur if the purchaser or a connected person takes possession or pays a substantial amount of the purchase price.
Therefore, in suitable cases, it may be possible to rely on this anti-avoidance rule to lock-in to the stamp duty holiday rates by substantially performing the contract before 1 April 2021 and ahead of completion. This tactic is however not for the feint-hearted or DIY conveyancer and specialist professional advice must be taken if you are thinking of doing this. This technique may also be unattractive to mortgage lenders so the agreement of the seller’s and the buyer’s lenders would need to be obtained.
It may also be possible to lock-in to the holiday using the grant of options over the house but once again specialist advice must be obtained before attempting this.
How can Patrick Cannon Assist?
If you are purchasing a residential property in the UK at any price and wish to take the benefit of the stamp duty holiday, Patrick can advise you on your options. Use the contact form below to get in touch on a no-obligation basis.
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