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Common stamp-duty questions answered SDLT | Accountingweb
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Home truths: Common stamp-duty questions answered

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Natasha Heron looks at six common questions around stamp duty land tax, which may be due on the purchase or transfer of a residential property.

2nd Sep 2022
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Stamp duty land tax (SDLT) is a complex area. Here are six of the most common questions about it. 

Buying a main residence

Q: Do I have to pay the higher rates if I am buying a main residence? 

The higher rates of SDLT cause immense confusion as there is an exemption if you are replacing your main residence. Many get confused by this exemption when they are purchasing a main residence, and in some cases timing the purchases will be key to avoiding a costly mistake. 

It helps to think of the higher rates as a flow chart: 

  • Do you hold an interest valued over £40,000 in any worldwide residential properties?
  • If the answer is no, then you are not within the scope of the higher rates. 
  • If the answer is yes, then the higher rates may apply. 
  • Have you disposed of a main residence within the past three years? 
  • If the answer is yes (and the other conditions are met) then the higher rates will not apply. 

The key point is whether a disposal has been made and this does not include moving out of rented accommodation or your childhood home.

Inherited property

Q: When an individual inherits a residential property, do they have to pay SDLT on the probate value of the property inherited? 

The general rule is, when land and property is transferred to a beneficiary or by virtue of the law on intestacy it is exempt from SDLT. 

As always, there is an exception to this rule. It does not apply where the beneficiary gives consideration other than the assumption of secured debt or the acceptance of an obligation to pay inheritance tax. For example, if a beneficiary pays the estate or another beneficiary for a property. 

Another point to consider is the impact of inherited properties on whether the higher rates apply to the purchase of new residential property. It depends on the situation but generally if you inherit the property within three years of the purchase and your interest is 50% or less the higher rates will not apply. 

Gifting a property

Q: If I give a let property to someone do they have to pay SDLT?

SDLT is calculated on chargeable consideration, which is money or money’s worth. A gift is freely given therefore money will not change hands. However, always beware of “money’s worth” as this includes debt. If you gift a property that has a mortgage then SDLT will chargeable on the value of the mortgage being transferred. 

Company liability

Q: When I transfer my property portfolio, for zero consideration, into my company does the company have to pay SDLT?

This is a common misunderstanding and if you do not receive advice before making a transfer you may be stung with a significant tax liability. Transfers from individuals to a connected company (for example a company in which you or those related to you are shareholders) occurs at market value. This means SDLT is calculated on the market value of each property, even though you may not personally receive any cash. The company will be liable to pay the SDLT to HMRC. 

There is a different set of rules if you are a trading partnership that is transferring property to a connected company. Under these rules the SDLT liability can be reduced to nil, however, it is complex and not one-size-fits-all. Joint purchasers (typically a husband and wife set-up) are not necessarily in partnership. For a partnership to exist there should be a partnership agreement, bank account, partnership tax returns and so on. The other point to highlight is it only applies to trading partnerships.

If you own investment properties you must check whether you are deemed to own a trading or investment partnership – the latter will trigger an SDLT liability. 

Check whether your transfer will trigger capital gains tax that you will personally be liable for. Always run your ideas past a tax adviser to avoid a costly pitfall. 

First-time buyers

Q: If I do not currently own a property do I qualify as a first-time buyer to get the SDLT first-time buyer discount?

To qualify as a first-time buyer you must not have held either a freehold or leasehold interest (for this purpose a lease with less than 21 years to expiry is not treated as a major interest) in a residential property anywhere in the world. This includes properties you may have received through inheritance or gifts and if you are a beneficiary of a trust.

If you are living in rented accommodation this is ignored, provided the lease is for a period of less than 21 years. 

Home offices

Q: Can I class my property as mixed-use as it has a home office?

As a result of Covid-19, more of us are working from home either exclusively or for part of the time. This gives rise to the question of whether a home office can be considered as commercial property for SDLT purposes. 

The treatment depends on the level of conversion. If the home office is simply a room with moveable furniture then it will remain classed as residential as it can be used as a spare room. 

If the office has been converted for a commercial enterprise and a third-party observer could consider it to be a commercial space then it will be a question of the facts for each particular case. Do also bear in mind that business rates should be paid and this will impact your ability to claim private residence relief (PRR) for capital gains tax purposes. The classification of a commercial home office can have significant knock-on effects for other taxes so consult your tax adviser before converting a space.

Replies (6)

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By Justin Bryant
02nd Sep 2022 13:23

There are some errors/oversights here. For example, not all rented homes are bad per HMRC’s guidance as follows from the link below:

"Leaving an assured shorthold tenancy will not count as a disposal unless the tenancy was granted for a period of more than 7 years."

https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdlt...

Also, if the child has an interest in the home and say gifts that to their parent(s) then that should be OK.

I don't follow the trading/investment partnership distinction and I think the author may be confused there re para 14 sch 15 FA 2003 treatment for transfers of an interest in a property investment partnership.

Unless your home is also a dental practice etc. it's virtually certain a home office won't change its suitability for use as residential property under s116 FA 2003 for obvious reasons.

Gifted mortgaged property will only result in SDLT on debt assumed by the donee and the debt is not automatically assumed with the gift, so the donee simply needs to agree with the donor not to be liable for the debt & interest to avoid SDLT there.

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Replying to Justin Bryant:
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By Justin Bryant
05th Sep 2022 09:50
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By Paul Crowley
03rd Sep 2022 12:53

Much appreciated
Written in simple terms that a client could readily understand
Particularly the partnership part. There are you tube videos extolling the idea of creating a partnership, temporarily, as the basis of putting the property portfolio into a company free of tax

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VAT
By Jason Croke
03rd Sep 2022 20:34

Nice article Natasha.

SDLT is such a maze of rules, impossible to cover every scenario and situation, but some useful basics and enough food for further thought.

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By a_q
06th Sep 2022 11:10

It would probably be worth covering how you reclaim the extra SDLT that is paid when buying a main residence before disposing of the first one.
I've just been through this and the reclaiming online form is a little tricky to navigate. It seems designed to put people off reclaiming anything.

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Jozef Behr
By jozefbehr
21st Sep 2022 06:55

Thank you for sharing interesting piece of content over here .

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