Who is affected by the Stamp Duty Land Tax changes and how can this be mitigated?

Stamp Duty Land Tax (“SDLT”) has always been one of the largest costs for any property purchaser outside of the price of the property itself.  It has also been a tax which has seen a lot of changes announced over the years.  No more than the announcements made by Rachel Reeves on 30 October 2024. 

We’ve previously explored the changes announced and what this could mean to an individual’s SDLT cost when purchasing an additional residential property in London or the South-East of England.  Our examples showing an increase in tax of between £11,000 and £14,720 based on an average house price. 

Whilst the expectation is that this only applies to landlords, whether existing or those starting on their property portfolio, it can also apply to individual’s purchasing a property for them to occupy.  Examples of this include: 

• The purchase of your new home but before you sell an existing main residence.  The surcharge applies at the effective date of transaction (normally completion).  If you are unable to sell your former home at the same time, or indeed you decide to keep it then the higher SDLT charge will apply.  A refund could be available should you sell your former home within 36 months of acquiring your new main residence, however this will impact your cash-flow. 

• The purchase of a replacement home which includes a subsidiary dwelling.  In some circumstances you may be acquiring a residential property which includes a second dwelling.  Previously Multiple Dwellings Relief would have been available often improving your SDLT liability.  However, where such a subsidiary dwelling is valued at more than one third of the overall purchase price then the surcharge rates will now apply to the whole transaction resulting in a higher overall cost. 

• The purchase of your new home which does not qualify as a replacement home.  For the replacement home rules to apply four conditions have to be met.  Where you are married or in a civil partnership the tests need to be applied to both of you, even where only one party to the couple is purchasing the property.  This can work in your favour however we have seen circumstances where it may not, often due to couples having more independent lives which result in them not always co-occupying one single property as their shared main residence. 

With a reduction in the starting rate band for residential property purchases from next April, more residential property purchases, even those not subject to the surcharge rates, will result in a higher overall SDLT liability.  The exception often being where the purchase qualifies for First Time Buyers Relief.   

However, it should not be overlooked that where you are acquiring a residential property which includes other aspects, for example land or buildings used for a business purpose, then it may be possible to treat the property as non-residential reducing the SDLT liability.   By way of an example, for a property where the consideration is £950,000, should it be considered non-residential then an £1,750 saving can be achieved.  The classification of a property as non-residential has been tested a lot in the Courts.  Just because the property comes with a large area of land does not itself make the property non-residential as there are a lot of factors to consider.  Should you think your property qualifies then we would recommend you seek specialist tax advice to provide an opinion on whether an SDLT saving could be made. 

If you would like any advice about the topics discussed in this article, please do get in touch.