COVID-19Tax tips

Temporary cut in SDLT – Who benefits?

To boost confidence in the property market and to maintain the momentum that has been gained since the easing of lockdown, the Government has announced a temporary increase in the residential stamp duty land tax (SDLT) threshold. From 8 July 2020 until 31 March 2021, residential SDLT threshold is increased from £125,000 to £500,000. Above £500,000 the normal residential rates apply. SDLT applies to properties in England and Northern Ireland.

The rate of residential SDLT applying from 8 July 2020 to 31 March 2021 are as shown in the following table.

Property valueMain homeAdditional properties
Up to £500,000Zero3%
Next £425,000 (£500,001 to £925,000)5%8%
Next £575,000 (£925,001 to £1.5 million)10%13%
The remaining amount (over £1.5 million)12%15%

Residential properties only

The increased threshold applies only to residential properties; the threshold for non-residential and mixed properties remains unchanged at £150,000.

For SDLT purposes a residential property is defined as:

  • a building used or suitable for use as a dwelling, or is in the process of being constructed or adapted for use as a dwelling;
  • the garden or grounds of such a building, including buildings of structures on such land;
  • an interest or right over land that subsists for the benefit of such a building or land (for example, a right of way).

The test is at the effective date of the transaction.

In deciding whether the garden and grounds form part of a residential property, remember the SDLT test differs from that for private residence relief purposes for capital gains tax purposes.

Prior to the reduction, the non-residential and mixed rates were lower than the residential rates, so it was in HMRC’s interests for the property to be classed as a dwelling. The tribunal case of P N Bewley Ltd v HMRC [2019] TC06951, highlighted the problems that may arise in relation to dilapidated buildings and illustrates that what HMRC may consider to be a ‘dwelling’ may differ from what a lay person may regard as being suitable for use as a dwelling. However, this approach may help the taxpayer to benefit from the lower residential rates applying until 31 March 2021.

Additional homes

A 3% supplement applies to second and subsequent residential properties. As this is applied to the reduced residential rates, those looking to buy a second home or an investment property in England or Northern Ireland will also benefit from the cut.

First-time buyers

Prior to the reduction a higher threshold of £300,000 applied to first-time buyers, as long as the purchase price was not more than £500,000. While first time buyers paying less than £300,000 are unaffected by the reduction, those buying residential properties costing more than £300,000 will benefit from the reduction.

Mixed-use properties

Properties that are both residential and non-residential (for example where there is both a residential and a business element) pay SDLT at the non-residential rates. This is usually beneficial but means such properties will not benefit from the temporary increase in the residential SDLT threshold.