What do the new SDLT rates really mean?

The issue

On Wednesday the Chancellor announced quite a generous SDLT holiday. With immediate effect until 31 March 2021 the rate of SDLT for the first £500,000 of property purchases is 0%. This means that the purchaser of a £500,000 on Tuesday would have paid SDLT of £15,000 whereas a purchaser of the same house on Wednesday would have paid £0.

The Tuesday calculation of:

£125,000 @ 0% = £0

£125,000 @ 2% = £2,500

£250,000 @5% = £12,500

totalling  £15,000

changed into the Wednesday calculation of:

£500,000 @ 0% = £0

More detail

Although the 0% does not apply where the 3% surcharge applies these purchasers will still be better off as they will no longer pay ‘normal’ SDLT at this level of purchase.

This new rate could also be particularly powerful for buyers who acquire multiple dwellings and can claim multiple dwellings relief (MDR). MDR is an SDLT relief that applies when there is more than one dwelling in a property purchase. The relief operates by dividing the total chargeable consideration by the number of dwellings. SDLT is then calculated on that lower figure. The result is then multiplied again by the same number of dwellings to produce the SDLT liability. This usually produces a more favourable result due to the way that the SDLT tax bands operate, as the more expensive a property is, then higher rates of SDLT apply to top levels of consideration. MDR therefore provides the benefit of the same consideration being assessable at lower rates of SDLT.

This calculation means that a purchaser of four £500,000 houses (say) for £2M will pay £60,000 less SDLT than they would have done previously.

Forbes Dawson comment

Sellers need to be aware of these new rules as well as buyers as they may be able to use them as leverage to increase the price.

Often purchasers of six or more properties make use of a rule which allow SDLT to be based on commercial rates (0% up to £150,000, 2% between £150,000 and £250,000 and 5% over £250,000) but now they may want to use residential rates and claim MDR which will often give rise to an SDLT rate of no higher than 3%.

 

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