SDLT cuts may be more significant than you think
10th October 2022
Posted in Articles, Stamp Duty, Stamp Duty Land Tax by Andrew Marr
The issue
From Friday 23 September 2022, residential rates were cut in the so-called ‘mini budget’.
Rates before Friday were:
0% up to £125,000
2% between £125,001 and £250,000
5% between £250,001 and £925,000
10% between £925,001 and £1,500,000
12% over £1,500,000
After Friday, the 2% band was converted to 0%, effectively extending the 0% band to £250,000. This means that typically any saving from the change will only amount to £2,500 (calculated as £125,000 @ 2%). However, this is not the whole story as there are circumstances when this saving can be magnified.
Multiple Dwellings Relief (MDR)
If a buyer of a house with an annex makes an MDR claim, then Friday’s announcement will save them £5,000, assuming that the house is worth at least £625,000.
Example
Ned buys a house with an annex for £625,000 and claims MDR. Before 23 September the calculation would have been as follows:
1. Calculate SDLT on £312,500 (£625,000/2). This is £125,000 @ 0%, £125,000 @ 2% and £62,500 @ 5%, or £5,625.
2. Multiply £5,625 by the number of dwellings to get SDLT due (subject to a 1% de minimus). This gives £11,250.
From 23 September the calculation is as follows:
1. Calculate SDLT on £312,500 (£625,000/2). This is £250,000 @ 0% and £62,500 @ 5%, or £3,125.
2. Multiply £3,125 by the number of dwellings to get SDLT due (subject to a 1% de minimus). This gives £6,250 (which is a £5,000 saving compared to the pre-23 September figure).
Ramping it up
Expanding this idea, let us consider the scenario where apartments are being acquired.
Example
Trotter Trading Ltd acquires an apartment block including 130 self-contained apartments for £32.5m. Here, the 3% surcharge will apply to the corporate buyer. Before 23 September the calculation would have been as follows:
1. Calculate SDLT on £250,000 (£32.5m/130). This is £125,000 @ 3% and £125,000 @ 5%, or £10,000.
2. Multiply £10,000 by the number of dwellings to get SDLT due (subject to a 1% de minimus). This gives £1.3m (£10,000 x 130).
From 23 September the calculation is as follows:
1. Calculate SDLT on £250,000 (£32.5m/130). This is £250,000 @ 3%, or £7,500.
2. Multiply £7,500 by the number of dwellings to get SDLT due (subject to a 1% de minimus). This gives £975,000 (£7,500 x 130).
This amounts to an SDLT saving of £325,000 compared to the pre-23 September figure.
Forbes Dawson view
The examples above show that the cost of failing to make MDR claims has just increased, and it is worth remembering that any claims need to be made by one year and 14 days from the effective date of the transaction, or the opportunity will be lost. We often see transactions involving six or more dwellings being returned at non-residential rates. Although this is within the rules and sometimes will give a better SDLT result than making an MDR claim, the recent rate changes will mean that the MDR route is more likely to be the preferable one.
