Stamp Duty Land Tax (SDLT) is an important consideration for anyone purchasing property in England and Northern Ireland.
Understanding the specifics of how SDLT applies to residential dwellings can help avoid unexpected costs and ensure compliance with the latest regulations.
(Read Time: Approx. 4 minutes)
Topics Discussed:
- The differences in SDLT rates based on property type and purchaser identity
- Upcoming changes to Multiple Dwellings Relief and their impact on transactions
SDLT Rates and Applicability
SDLT is a tax applied to the purchase of land or property, with the rate varying depending on the type of property and the status of the purchaser.
It’s crucial to note that SDLT is not universally applicable across the UK.
Since April 2015, Scotland has operated under the Land and Buildings Transaction Tax (LBTT), and since April 2018, Wales has used the Welsh Land Transaction Tax (LTT).
For properties in England and Northern Ireland, however, SDLT still applies.
Residential property and non-residential property are taxed at different rates, and additional surcharges apply under certain circumstances.
For example, since April 2016, there has been a higher SDLT rate for individuals purchasing an additional dwelling or companies buying residential properties.
Additionally, non-residents are subject to a surcharge as of April 2021, further complicating the SDLT landscape for international buyers.
One key distinction in SDLT regulations is between residential and non-residential property, which affects the applicable tax rate.
For example, mixed-use properties, combining commercial elements with residential dwellings, are charged at the non-residential rate, a notable distinction when considering property investment.
Residential Property and Dwellings – Definitions and Rules
Understanding the definition of a residential property is essential, as it determines the SDLT rate applied.
Under section 116 of the Finance Act 2003, residential property includes:
- Buildings used or suitable for use as a dwelling
- Land that forms part of a dwelling’s garden or grounds
- Rights over land that benefit a residential dwelling
Non-residential properties are simply those that do not fall within this definition, and they are typically subject to lower SDLT rates.
From April 2021, purchases by non-resident buyers attract a surcharge on top of the regular SDLT rate.
This policy aims to address the impact of overseas buyers on the housing market, particularly in urban areas.
Mixed-use properties that combine residential and commercial functions remain subject to non-residential rates, potentially reducing the tax burden in these cases.
What’s Changing? The Abolition of Multiple Dwellings Relief
One significant upcoming change is the abolition of Multiple Dwellings Relief (MDR), set to take effect on 1 June 2024.
MDR currently allows buyers of multiple residential properties within the same transaction to calculate SDLT based on the average price of the dwellings rather than the total amount.
This relief has been widely used by property investors to reduce their overall tax liability.
The removal of MDR will likely lead to higher SDLT charges for buyers acquiring multiple properties at once, particularly affecting landlords and property developers.
As such, those planning purchases involving multiple dwellings should consider completing transactions before the deadline to take advantage of this relief while it is still available.
Summary
Understanding SDLT on residential property purchases requires a clear understanding of the various rates and surcharges that may apply, depending on the type of property, the status of the buyer, and the property’s use.
Key distinctions between residential and non-residential properties, alongside the rules for non-resident buyers, can significantly impact tax liabilities.
With the forthcoming abolition of Multiple Dwellings Relief in June 2024, now is the time for buyers to review their plans and seek professional advice.
If you’re unsure how SDLT regulations could affect your property transaction, Tax Expert is here to help.
Fill out our form here for any questions, give us a call at 01772 788200, or message us on our WhatsApp for out of office hours.
Kind regards,
Ilyas Patel