UK Tax on property acquisition

Stamp Duty Land Tax (“SDLT”) is charged on purchases of freehold and leasehold land and property in England, Wales and Northern Ireland.

The charge is normally based on the price paid for the property, but can also apply where land and property is acquired in exchange for non-cash payment, for example for the transfer of a mortgage or other debt, or in exchange for services etc.

An SDLT return must be filed and the tax must be paid within 30 days of the property acquisition completion date. This process is normally managed by a solicitor or conveyancer, who will usually file the form and pay the tax on the purchaser’s behalf and add the cost to their fees.

Different SDLT rates apply, depending on the price of the property and whether it is residential or non-residential.

Residential property

The SDLT rates for the purchase of residential property are as follows:

*Transactions for no more than £40,000 are excluded from the surcharge.

The lower rates apply to individuals who replace their only or main residence within three years of selling an existing main residence. Where an existing main residence is not sold at the date of acquiring the new main residence, the higher SDLT rates must be paid, but it may be possible to claim a refund of the additional 3%, if the previous main residence is sold within three years.

The higher rates apply to all companies and to any individuals acquiring share in a second home or an investment property, even where all other properties are overseas.

Where a leasehold property is acquired, SDLT is paid on the lease premium and on the net present value of the rentals payable over the life of the lease.

Properties acquired by certain non-natural persons

SDLT is charged at 15% on residential properties costing £500,000 or more if they are acquired by non-natural persons who fall within the Annual Tax on Enveloped Dwellings (“ATED”) regime, unless they are entitled to claim an exemption. Further information on the ATED regime can be found below.

Multiple dwellings relief

Where a purchaser acquires more than one residential property in a single or in linked transactions, it is possible to make a claim for multiple dwellings relief, if this is beneficial. If relief is claimed, the total amount paid for the properties is divided by the number of properties, SDLT is then calculated at the usual rates on this figure and the resulting amount is multiplied by the number of properties.

The minimum SDLT charge under this method is 1% of the total purchase price, so if the calculations produce a lower charge, the amount payable is increased to 1%.

Acquisitions of six or more residential properties

Where six or more residential properties are acquired in the same transaction, the lower, non-residential rates of SDLT apply.

Non-residential property

Non-residential property includes commercial property such as shops and offices, agricultural land, forests and any other land that or property which is not used as a residence. It also includes mixed use property, i.e. property that has both residential and non-residential elements.

As mentioned above, purchases of six or more residential properties in the same transaction also fall to be treated as non-residential.

The SDLT rates for acquisitions of non-residential property are as follows:

Price or transfer value, including lease premium

SDLT rate

Up to £150,000

Zero

The next £100,000 (the portion from £150,001 to £250,000)

2%

The remaining amount (the portion above £250,000)

5%

Net present value of rental payments under lease

Over £150,000 but not more than £5 million

1%

Over £5 million

2%

Reliefs for builders and property developers

Builders and property developers are generally subject to SDLT like any other purchaser. However relief may be available in the following limited circumstances.

Part exchange on new homes

Where a builder acquires a home from an individual in part exchange for a new home that the builder is building for them, the builder may be exempt from SDLT on the purchase of the old home if certain conditions are met.

In order for the builder to qualify for exemption, the individual must have lived in the old property as their main residence at some time within the two years before the part exchange, they must buy a new home from the builder and they must intend to live in the new home as their main residence. There is also a restriction on the size of the land that the builder can acquire with the property. This is normally 0.5 hectares.

Developers subject to planning obligations

In exchange for granting planning permission, planning authorities may require developers to provide community amenities such as community buildings. These buildings are usually transferred to the local authority once completed and this can give rise to a double charge to SDLT; once on the acquisition of land by the developer and again on the transfer of the building to the local authority. In these cases the developer can claim relief from SDLT on the first purchase.

Other reliefs

Other reliefs from SDLT are available, for example on certain transactions between group companies and on some acquisitions of property by charities. The rules can be complex and professional advice should always be sought.

First time buyers

Individuals buying their first home and paying £300,000 or less for a resident ial property are exempt from SDLT. A first time buyer paying between £300,000 and £500,000 pays SDLT at 5% on the amount of the purchase price in excess of £300,000. However If the purchase price is more than £500,000, no relief is due and SDLT is payable in accordance with the normal rates.

A first t ime buyer is defined as an individual or individuals who have never owned an interest in a resident ial property in the United Kingdom or anywhere else in the world and who intends to occupy the property as their main residence.

Article by Ralph Mitchison, Parter at Menzies, member of HLB’s Real Estate Group. Contact Ralph on This email address is being protected from spambots. You need JavaScript enabled to view it.