Part-exchange SDLT relief for property traders
4th September 2020
Posted in Articles, Stamp Duty Land Tax by Forbes Dawson
The issue
There is a relief for house building companies which acquire properties through part-exchange.
The relief
Many developers offer purchasers the opportunity to part-exchange their existing house for a new property. This provides a developer which is a house building company with a sale and saves the purchaser from the hassles of selling his or her existing home. Normally the developer would be treated as acquiring the property at its market value and would be liable to SDLT on that price. However, in a part-exchange situation, the purchase of the house by the house builder or property trader is exempt from SDLT as long as the person entering into the part exchange has lived in the property offered in part exchange as his or her only or main residence at some point in the two years prior to the part-exchange, and they buy a new home from the house building company that they intend to live in as their only or main residence. The relief applies to land taken in exchange with the house up to a limit of 0.5 hectares.
Interestingly, this relief seems to apply irrespective of the value of the property which is received by the house building company. Although most part-exchanges involve a ‘trade-down’, ‘trade-ups’ can be an attractive SDLT proposition for developers.
Example
Jim owns a £1M house in Cheshire (assume within 0.5 hectares) and wants to downsize to a £400,000 apartment because he is getting old. The property development company has also got its eye on Jim’s house as a development proposition. A transaction is undertaken whereby the company acquires Jim’s house for £600,000 and the £400,000 apartment. The company should be able to claim the exemption on the whole £1M house.
Forbes Dawson view
If this relief has been missed then it should be possible for a house building company to make a reclaim to HMRC within a year and 14 days of a transaction. There are also some similar reliefs which should not be overlooked such as relief for a property developer buying a house from the estate of a person who lived in the property as their main home. Given the current high SDLT rates, these reliefs should be in every property developer’s armoury.
