Stamp Duty Land Tax – Recent Changes And Unusual Cases

Sarah Bradford takes a look at some recent changes to SDLT and the calculation of the SDLT bill in some more unusual cases where ownership changes hands.

Stamp duty land tax (SDLT) is payable where ownership of land and property changes hands in exchange for consideration. In most cases, ownership will change hands in return for money; however, the definition of `consideration’ is not limited to money and includes goods, works or services and the release or the transfer of a debt. 

SDLT is calculated by reference to the chargeable consideration. 

It should be noted that SDLT does not apply in Scotland – land and buildings transaction tax (LBTT) applies instead. Also, from 1 April 2018, SDLT is replaced by land transaction tax in Wales.

As far as residential property is concerned, SDLT is payable at the appropriate rate for each `slice’ of the chargeable consideration. The rates charged depend on whether the purchaser has owned a property before or is a first-time buyer, and whether the property in question is a second or subsequent property. 

The most straightforward case is where someone who has previously owned a home then moves to a new house, disposing of their old residence and buying a new one. The rates that apply are as follows:

Up to £125,000 Zero

Next £125,000 (£125,001 to £250,000) 2%

Next £675,000 (£250,001 to £925,000) 5%

Next £575,000 (£925,001 to £1.5 million) 10%

Excess over £1.5 million 12%

George and Rebecca move to a new house. Their new home costs £350,000. 

They must pay SDLT of £7,500 (£125,000 @ 0%) + (£125,000 @ 2%) + (£100,000 @ 5%)).

First-time buyers who buy a property for £500,000 or less where completion takes place on or after 22 November 2017 do not pay any SDLT on the first £300,000 of the purchase price. SDLT is payable at the rate of 5% on any chargeable consideration in excess of £300,000, up to £500,000. First-time buyers buying a property where the chargeable consideration is in excess of £500,000 pay normal residential SDLT rates, as set out in the table above.

Chris is a first-time buyer. He buys a property costing £350,000. The purchase completes in February 2018. 

He pays SDLT of £2,500 ((£300,000 @ 0%) + (£50,000 @ 5%)).

Additional properties are subject to a 3% SDLT supplement on the rates set out in the table above. The supplement applies where the chargeable consideration for the additional property is £40,000 or above. 

The supplement affects those buying buy-to-let properties, investment properties, second homes, holiday homes, etc. However, it does not apply if the main residence is exchanged and the former residence is sold at the same time or before buying the new home. This would be the case if a buy-to-let landlord sold his main home and bought a new one. However, if the replacement home is bought before the old home is sold, the 3% supplement is payable initially, but it can be reclaimed as long as the former home is sold within three years.

Mike has a number of investment properties, which he lets out. He buys another house to add to his buy-to-let portfolio for £350,000. 

The additional property supplement applies, and he must pay SDLT of £18,000 ((£125,000 @ 3%) + (£125,000 @ 5%) + (£100,000 @ 8%)).

SDLT may also be payable when a property is transferred from single to joint ownership; for example, when a couple move in together, marry, or enter into a civil partnership. The extent to which SDLT is payable will depend on whether there is any chargeable consideration, and the amount of that consideration. It should be noted that the consideration does not have to be in the form of a payment – if one partner assumes a share of the mortgage in return for a share of the property, that too is valuable consideration and may trigger a SDLT bill.

No SDLT arises if the chargeable consideration is less than the SDLT threshold (i.e. £125,000 where the purchaser is not a first-time buyer and does not have another property).

Where no cash changes hands, but the purchaser assumes a share of the mortgage, SDLT will be payable if the mortgage liability is more than the SDLT threshold.

On their marriage, Helen moves into James’ house and they transfer the property and the associated mortgage of £300,000 into joint names. 

As Helen assumes a debt of £150,000 (i.e. 50% of the mortgage) in return for her share of the property, there is chargeable consideration. As this exceeds the SDLT threshold, SDLT of £500 is payable ((£125,000 @ 0%) + (£25,000 @ 2%)). 

If the transfer is a gift, no SDLT is payable, irrespective of the value of the property, as there is no chargeable consideration. 

Ownership of a property, such as the family home, may be transferred from joint to single name when a couple separate or divorce, or when a civil partnership comes to an end. 

Where an interest in land or property is transferred to a partner as part of an agreement or court order because the couple are divorcing or dissolving a civil partnership, no SDLT is payable. This is also the case if the couple annul their marriage or permanently separate. In this situation, there is no need to tell HMRC about the transfer, even if the consideration exceeds the SDLT threshold.

Unmarried couples and other joint owners

Where property is owned jointly other than by spouses and civil partners, it may be possible to divide it without triggering a liability to SDLT. This will be the case if the property is divided physically and each own an equal share. 

However, if one person takes a larger share and pays some cash or other consideration in exchange, SDLT is payable if the chargeable consideration is in excess of the SDLT threshold. Also, HMRC must be notified. 

Following their father’s death, Green farm is owned equally by his three sons. The farm is worth £3 million. They decide they each want their own farm and divide the farm equally, so each has a share worth £1 million. As the value of each share is the same, no SDLT is payable.

By contrast, Black farm is owned equally by two brothers, Will and Tom. Will wishes to continue farming, whereas Tom works in marketing and only wants to retain a home on the land. The farm is worth £2 million. It is divided up, so Will receives land and farm buildings to the value of £1.5 million and Tom receives a farm cottage worth £500,000 and cash from Will of £500,000. SDLT is payable on the £500,000 as this is above the SDLT threshold. 

As SDLT is payable on chargeable consideration, it does not apply where there is a gift. This may be the gift of a whole property or a share in it. This rule also applies where a property is split between join owners and one owner takes a larger share but pays nothing in return. 

So, in the example of Black Farm above, if Will had retained a larger share without giving Tom cash to equalise the position, no SDLT would be payable – in this scenario, Tom gifted Will part of his share. 

Where land or property is received under the terms of a will, no SDLT is payable. This is the case regardless of the value of the property and applies if there is an outstanding mortgage on the property which is taken on. However, this is conditional on no other consideration being given. 

Where ownership of land or property is to be transferred, make sure that you are aware of the SDLT implications before making the transfer.