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Markel Tax

26 Jun 2020

SDLT common misconceptions

The Markel TaxDesk team receive a steady stream of SDLT queries and in this article they share some of the common misconceptions around SDLT as well as some of the more popular queries.

There is no SDLT on a transfer between spouses or civil partners

Unlike capital gains tax there is no exemption or relief for transfers between spouses or civil partners. If property with no mortgage debt is gifted between spouses or civil partners then there is no chargeable consideration, so no SDLT is payable. However, if debt is assumed by the transferee spouse or civil partner then this is chargeable consideration and an SDLT liability arises.

Transfers between spouses or civil partners are not subject to the higher rates for additional dwellings, so the additional 3% is not charged on these transfers but any liability at the normal rates remains.

The higher rates apply to purchases of all residential buy to let property

The higher rates for additional dwellings can only apply if you own two or more dwellings at the end of the day you make a purchase, so if you own no properties and purchase a residential buy to let property then the higher rates will not apply to that purchase. However, if you then subsequently purchase your main residence the additional 3% will apply to that purchase; there is no facility to choose to pay the additional 3% on the earlier purchase.

Timing of purchases can produce some odd results when combined with the higher rates and the replacement of main residence exemption. For example, consider a couple who plan to sell their main residences, go travelling for a year and then get married on their return. If they each reinvest some of the proceeds from their main residences into buy to lets in their own name and then buy a home jointly on their return the higher rates will not be payable on any purchase!

Linked transactions always result in additional SDLT

This is not always true; while linked transactions can increase the overall SDLT liability, as the SDLT on the linked transaction is calculated as one transaction for the combined consideration only benefiting from one 0% band, in some circumstances linked transactions can also reduce the SDLT liability.

Linked transactions with more than one dwelling can qualify for multiple dwellings relief, and linked transactions featuring mixed property, that is residential and non-residential property, will be taxed at the non-residential rates.

For example, a company purchasing a residential property for £500k and a non-residential property for £500k from the same vendor in separate transactions would pay total SDLT of £44,500, but purchasing them in linked transactions would result in total SDLT of £39,500!

Additional dwellings as part of one main residence purchase will always result in lower SDLT

A claim for multiple dwellings relief on the purchase of a main residence where the so called ‘granny annex’ rule applies allows more than one 0% band to be utilised, and therefore reduces the overall SDLT liability.

The granny annex rule applies where the cost of the annex or annexes, which could include separate outbuildings within the overall curtilage, is less than one third of the overall cost of the property. If the cost of the annex or annexes is greater than one third of the overall cost of the property, then each annex would be an additional dwelling subject to the additional 3%.

For example, the purchase of a main residence with one annex for a total of £1m, with the annex worth £250k, would result in an SDLT liability of £30k. However, if the same property included a second annex, also worth £250k, then the SDLT would increase to £35k.

There is an exemption or relief for transfers from partnerships to connected companies

There are no specific exemptions or reliefs for transfers of property from partnerships to connected companies. The legislation has a schedule for partnership transactions that determines the chargeable consideration for such a transfer using a formula, and in the case of such a transfer the result of the formula is often £nil. The link between the actual consideration for accounting, legal, and other tax purposes and the consideration for SDLT purposes is broken by the specific formula in the schedule.

There is then an exemption from SDLT for transactions where the chargeable consideration is £nil, but this is a general exemption for all transactions with £nil consideration and not specific to partnerships.

SDLT could apply to transfers of shares in a property company

Shares remain subject to stamp duty and unlike, say, capital gains tax where a charge has been introduced for property rich companies, no such charging provision exists in the SDLT legislation. The tax provisions targeting the enveloping of properties in companies to mitigate SDLT remain limited to SDLT de-grouping and the annual tax on enveloped dwellings.

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Tagged Property Property tax & SDLT
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Avoiding the pitfalls of CJRS claims