Stamp Duty Land Tax – it’s effect on house prices and ways to reduce it
Posted on 18th February 2022 at 17:09
Stamp Duty Land Tax (SDLT) receipts last year were extremely different in comparison to previous years. This is due to a number of factors; the SDLT tax relief for properties worth up to £500,000 ended June, 2021 and the tax relief for properties worth between £125,000 and £250,000 was also brought to an end on September 30.
These two deadlines created a huge spike people complete purchases properties under these thresholds thereby avoiding having to pay SDLT. According to Government data, transactions in October to December last year were 10% lower than the previous quarter, and 13% lower than Q4 2020.
Total receipts up in Q4 2021
Despite this, total receipts in Q4 2021 were 22% higher than Q3 2021, and 55% higher than Q4 2020.
This change in receipts will have largely been impacted by the lower residential nil-rate band of £125,000 for Q4 last year compared to £250,000 for Q3 2021 and £500,000 for Q4 2020.
While house prices increase, the thresholds still stay the same and the receipts are likely to rise if property sales continue at the same pace.
2% SDLT surcharge for non-residents
Since April last year those living in the country despite not being UK residents have faced a 2 % SDLT surcharge. This has resulted in 8,500 transactions paying £86m in Q4 last year
How to reduce SDLT
A way to reduce the impact of SDLT is to buy a property in a lower price bracket or negotiate a lower price which is below the threshold. However, you must be warned, HMRC condemn house price cuts where you are buying a property that isn’t the full market value.
For those who have faced an additional 3% SDLT when buying a second home, then if you sell your main property (after 3 years of acquiring the second property) you could claim a refund based off of the 3% surcharge. This may be a large amount of saving and is definitely worth exploring if you plan to sell your main home soon after buying a second home.
You can also negotiate a price for removable fixtures and fittings if the seller is prepared for you to handle the costs, as you only pay SDLT on the property purchase itself. This could reduce the overall price of the property as a result dropping you into a lower tax band. HMRC demands that this can only be completed on a “just and reasonable basis” so you would need to make sure you get legal advice on how to do this properly.
First-time buyers, buying a property with a house price up to £300,000 currently do not pay SDLT. If your property is below this level you will not pay SDLT.
In addition if you decide to build your own property would only pay the SDLT based upon the cost of the land purchased, which typically lower than buying a property already on the land. Some may see this as an extreme, but this may an option for the right person.
Find out how we can help you
If you have a query about SDLT and how you can should manage this tax, then please give us a call and we can guide you through what you can and cannot do to mitigate this tax.
Tagged as: Stamp Duty, Tax planning
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