The Chancellor has announced a temporary increase in the “nil rate band” for stamp duty land tax (SDLT), effective immediately.
SDLT is payable in bands, with different rates applying to residential and non-residential property. Prior to today’s announcement the first £125,000 of the purchase price of any residential property was exempt from charge, and the Chancellor has announced that this will be increased to £500,000 for properties purchased between 8 July 2020 and 31 March 2021. The new rates are shown here:
An illustration of what this means in practice can be seen below:
There is a maximum saving of £15,000 per property.
We are yet to see detailed legislation, but we have a few thoughts at this stage:
- We would hope and expect that this reduction in rates will apply to property sales which complete after midnight last night, ie property sales which have already exchanged under the old higher rates will not be excluded from the reduction in rates. We will also need to examine the rules for 31 March 2021 to see whether properties which exchange prior to 31 March 2021 will “lock in” the reduced rates even if they complete afterwards – this will be particularly important for overseas clients given the promised 2% surcharge on overseas buyers from 1 April 2021.
- Please note that the 3% Higher Rate for Additional Dwellings (the “HRAD”) applies on top of the rates listed above. So a buyer who already owns another dwelling and is not replacing their main residence may well still have a minimum SDLT rate of 3%. The HRAD does not appear to have been reduced or restricted in any way.
- In addition to the above nil rate band increase, there has been a similar increase to the nil rate band for SDLT on the rental element of leased property. This applies only rarely in our experience, but nevertheless is worth bearing in mind for new leases or extensions within the next nine months.
LBTT in Scotland
Following the increase in the SDLT nil rate band threshold in England and Northern Ireland, the Scottish Government has announced a similar measure to stimulate the housing market in Scotland. The Scottish nil rate band will increase to £250,000 from £145,000, though a date when this will take effect has not yet been announced.
The change means that no LBTT will be payable up to £250,000, and for a new build four bedroom home costing £500,000 LBTT will be reduced from £23,350 to an expected £21,250.
Housebuilders and developers will welcome the change, with the average price of a new build home in Scotland being around £225,000.
Land Transaction Tax in Wales
Following the example of England, Northern Ireland and Scotland, the Welsh Government has announced that the threshold under which no Land Transaction Tax (the Welsh equivalent of Stamp Duty Land Tax) is due will be raised on a temporary basis.
The limit was previously £180,000, and it will be raised to £250,000 for transactions taking place between 27 July 2020 and 31 March 2021.
While this move is welcome, there are now three different and diverging regimes of land transfer tax in the UK and it is more and more difficult for conveyancers in one jurisdiction to keep up with small but significant disparities in the rules. For example, the new Welsh rates will not apply to second homes and rental properties, whereas in England and Northern Ireland part (but not all) of the benefit of the increased nil rate band will apply to such properties.
For advice on the new SDLT rates, please speak to your usual Saffery partner, or contact Adam Kay: [email protected].