Residential Stamp Duty Land Tax (SDLT) (i.e. SDLT on deals relating to interests in/over dwellings and their curtilages) has changed.
The rates have changed, and the way that those rates apply has changed, too. We have moved from the traditional 'slab' system to the 'step' system seen in income tax.
Under the old 'slab' rules, SDLT liabilities leapt dramatically once a rate threshold was exceeded - for example, from 1% of the whole purchase price for a house costing £250,000 (SDLT £2.5k) to 3% of the whole purchase price for a house costing £250,001 (SDLT £7.5k).
No longer. Instead, under the new rules, the purchase price will be split into 'bands', and SDLT will apply to each band at a different rate.
New rates (Residential)
| Band of Price |
SDLT Rate applicable for the band |
| 0 - 125,000 |
0% |
| 125,001 - 250,000 |
2% |
| 250,001 - 925,000 |
5% |
| 925,001 - 1,500,000 |
10% |
| 1,500,001 and over |
12% |
So for a £250,001 purchase price, now the first £125k will be subject to nil tax, the next £125k will be subject to a 2% rate, and only the additional £1 would be subject to SDLT at a 5% rate. So whether the price is £250,000 or £250,001, the SDLT will still be £2.5k (after rounding).
This will result in more arithmetic. HMRC has provided a calculator and fairly handy guidance.
The new rules applied from midnight on 3 December 2014. If exchange and completion straddle midnight on the 3rd, then you get a choice as to which rules apply (see below). If both fall before midnight on the 3rd, then the old rules apply (no choice). If both fall after midnight, then the new rules apply (no choice). Reference to 'completion' would include reference to 'substantial performance' (a hallmark of completion such as possession of a substantial amount of the property, or payment of more than 90% of the purchase price) - but these are seldom relevant in modern residential transactions.
Under the new rules, purchasers at cheaper prices will pay a lower effective rate of tax (although house prices will doubtless start to breach those old price thresholds of £125k, £250k, and £500k).
Under the new rules, purchasers at the higher prices will pay a higher effective rate of tax - and so will be interested in preserving the slab and the old rates. And they can - provided that they exchanged contracts before midnight, and go on to make an election. They can then complete at leisure with the old rates banked. But the right to elect will be forfeit if:
- the contract is subsequently varied - so the contract has to be in final form (which prevents nipping and tucking of the contract after the fact!); and
- the benefit of the contract is subsequently assigned - so the contracting purchaser has to be the actual purchaser.
For completeness, and to reflect the most frequently-asked questions from clients (and by way of a few little useful tips):
- land that is non-residential when acquired (or is mixed-use) is not affected (headline rate remains 4%) - even if it has planning for/is intended for residential;
- land is residential even when there is a dwelling that is to be demolished or which is partly-completed at completion;
- the slab system - and the SDLT rates - that we're all familiar with still apply to non-residential/mixed use deals;
- don't forget that an acquisition of six or more dwellings is still a non-residential deal for SDLT purposes;
- the use of SDLT multiple dwellings relief will result in a 'minimum' charge of 1% (but is still likely to be highly beneficial); and
- the blanket super-rate of 15% still applies to 'enveloped' dwellings bought in corporate wrappers, and is still worth staying away from: SDLT of 15% on £2,000,001 is still dramatically higher than an effective SDLT rate of c7.7% on an 'un-enveloped' acquisition under the new rates, at the same price.