The amount of stamp duty land tax (SDLT), often simply called stamp duty, may be a considerable deterrent to the purchase of a house. Currently the rate for residential property is 5%, if the consideration is more than £1m but less than £2m, and 7% if more than £2m. Where residential property is purchased by a company for more than £2m it can be taxed at an onerous 15%. The normal property purchaser assumes that, say, 5% or 7% is the correct rate to pay and factors this into their cashflow, yet a lower rate may be appropriate. Unfortunately, sometimes this can be missed when processing the SDLT return, without delving deeper and providing specific advice as to the appropriate SDLT rate to pay.
A closer inspection of the details of the potential purchase may produce dividends. For instance, if the property being purchased is considered as 'mixed use', then the rate should not exceed 4%, which is the maximum rate for non-residential or mixed use property. Examples of mixed use include when a house is sold with some fields or stables, which have been converted to office units. The ability to use the mixed use rate is not a relief per se, but is merely using the correct rate for the particular transaction.
A useful relief that could be considered, where more than one 'dwelling' is being purchased at the same time, is multiple dwellings relief. For instance, a country house purchase may well include a staff cottage. To determine the appropriate SDLT rate, the consideration can be divided by the number of dwellings being purchased; the rate applicable will be that of the average property price. For instance if the house and staff cottage are purchased for £2.5m, normally taxed at 7%, the average price for the two would be £1.25m, which will give a 5% rate.
A detailed examination of the facts is needed to determine whether the mixed use rate or multiple dwellings relief is applicable. Often these freely available entitlements are entirely overlooked, yet the savings can be considerable.
Of course, when dealing with SDLT, great care has to be taken to include the correct entries on the SDLT return, otherwise interest and penalties will be incurred. We would be happy to review your property purchase and to assist your conveyancer to determine the correct rate of SDLT to apply.
We have taken great care to ensure the accuracy of this newsletter. However, the newsletter is written in general terms and you are strongly recommended to seek specific advise before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Holdings Limited 2014.