Over recent months there has been lots of negative publicity around SDLT reliefs. Largely due to the significant volumes of firms who have made it their mission to reclaim as much SDLT as possible. Usually in sometimes fairly spurious circumstances. This is as a result of various SDLT reliefs which they say apply in respect of those transactions.
As such, we can forgive you for thinking that looking to reduce your SDLT liability on a property purchase is a waste of time. This is simply not true. Indeed, it is worth reminding ourselves of a number of SDLT reliefs which are available. They can help to reduce the amount of SDLT you might pay on a property purchase.
The fact is that many solicitors and property conveyancers, whilst very good at what they do are simply not fully aware of some of the SDLT reliefs available to clients. Or how they operate. Which results in a significant number of taxpayers overpaying their SDLT. Some estimate that up to 40% of SDLT returns could be incorrect, usually in HMRC’s favour.
It was perhaps these kinds of figures which prompted the Solicitors Regulation Authority (SRA) to issue a notice to all its members. The notice advises them that in any cases of uncertainty surrounding the SDLT treatment of a property transaction, they should be suggesting the client take specialist tax advice. Of course, that is where we come in!
The purpose of this article is to increase awareness of the various reliefs. Alongside the circumstances in which those may become relevant. So as to help those purchasing properties and their advisers, to recognise when it is sensible to seek specialist help.
What reliefs are available to consider?
Six or more properties?
Many landlords or companies bulk purchase rental properties or buy to let properties. Where they acquire six or more residential properties as part of a single transaction, it is possible to apply the lower non-residential rates of SDLT to the transaction.
Derelict property
Where a property is derelict, you may be able to treat the transaction as a non-residential transaction.
Mixed-use property
The most common mixed-use properties where taxpayers unknowingly overpay SDLT is on:
- public houses; AND
- commercial shops with residential flats above
We have seen cases where individuals have paid SDLT on the separate components of a transaction. Those being the commercial component and residential component. This treatment incorrectly ignores linking transaction rules which are in legislation and apply by matter of fact.
Broadly, where property transactions link in the purchase of a public house, which would likely be the case in a pub purchase as the transactions are usually between the same buyer and seller, then it is likely that the lower, non-residential rates of SDLT would apply to the entirety of the transaction. This is because it would effectively class as a mixed-use transaction, something which many conveyancers do not always feel comfortable dealing with or advising on.
Conveyancers are filing mixed use returns based on each components residential / commercial status. This may lead to paying more SDLT than necessary.
Multiple dwellings relief (“MDR”)
The clue is in the title! Where you acquire more than one dwelling in a single transaction or series of transactions between the same buyer and seller, SDLT relief is available on the entire purchase. In brief, MDR works by applying the progressive rates of SDLT to the average consideration. Then multiplying the liability by the number of dwellings purchased. With SDLT being a progressive tax, it is favourable to tax on a reduced amount of consideration. This is is exactly what MDR does.
In some instances, i.e. when acquiring six or more residential properties, the taxpayer has a choice of applying either MDR or the non-residential rates of SDLT. Whilst a consultation is ongoing with HMRC, largely due to the abuse of MDR, this valuable relief can produce substantial savings in the right circumstances.
Replacement of main residential dwelling
A 3% SDLT surcharge applies to those who acquire second properties or additional dwellings. This can act as a deterrent to purchase residential properties. But you could in fact reclaim the higher rates of SDLT paid on the acquisition. This commonly applies where you dispose of your old property within three years of acquiring the additional property.
Charities relief
A charitable trust or organisation operating as a charity will be exempt from paying SDLT provided certain conditions or met. This can be of great benefit to the organisation and in turn, the beneficiaries. It strives to help but it is critical to seek advice. It not always as easy as it may appear at first glance to determine whether an organisation will be exempt.
Sale and leaseback relief
Many businesses and individuals who own a property and wish to raise finance without taking out debt finance consider the sale and leaseback of property as a means of raising finance.
Sale and leaseback arrangements usually take the form of a sale by A followed by a leaseback of those premises (or part of them) to B. This can involve more than one sale and multiple leasebacks.
Usually, you treat this sort of transaction as an exchange for SDLT purposes. And in the absence of any relief, SDLT would be due on the market value of the acquiring property.
Providing certain conditions are met, relief will be available for the leaseback element of the transaction. Although is not available on the sale (or lease in the case of a lease and leaseback).
Group relief
Ordinarily, the transfer of property between connected companies would take place at market value for SDLT purposes regardless of the consideration actually paid by the purchaser. However, where companies are members of the same SDLT group, no SDLT arises on land transactions undertaken between members of that same group.
It is important to note withdrawal of the SDLT relief given at the date of transfer can trigger in certain circumstances. Typically, this occurs where the acquiring company leaves the group (de-grouping) or there has been a change of control of the purchaser.
Following the withdrawal of relief, a reporting obligation to HMRC also triggers in the form of a SDLT return which would need submitting within 14 days of the date on which the withdrawal was triggered.
Where you are unsure of any transaction being undertaken in a group scenario, it’s always best to seek specialist advice.
Reconstruction and acquisition relief
Reconstruction relief
Where a land transaction is entered into relating to the transfer of the whole or part of an undertaking of one company (A) to another company (B) in pursuance of a scheme of reconstruction of A, the land transaction will be exempt from SDLT.
As with the other reliefs, certain conditions need to be met in order to qualify for the relief. Additionally, the acquisition must be effected for bona fide commercial reasons.
The relief is not automatic and must be claimed on the SDLT return.
Acquisition relief
Where a company acquires another company and satisfies the relevant conditions, the rate of SDLT is limited to 0.5% on any land transaction entered into for the purposes of the transfer of that business. This is a partial relief from SDLT.
Many of the conditions for this relief to apply are the same as those outlined for reconstruction relief but there are a number of additional conditions which must be fulfilled in order for acquisition relief to apply.
Both reconstruction and acquisition relief can be withdrawn at certain events, most commonly where there is a change in control of the acquiring company within three years of the transaction. At that point, SDLT would become due to HMRC.
First time buyer’s relief
Complete relief from SDLT is available to first-time buyers of dwellings costing up to £425,000 where the effective date of the transaction is on or after 23 September 2022. The relief also applies on dwellings costing up to £625,000 however the portion above £425,000 is liable to SDLT at a rate of 5%.
Where the dwelling exceeds £625,000, first time buyer relief is denied and the standard residential rates of SDLT apply.
This relief is not automatic and must be claimed on the land transaction return (form SDLT1).
The conditions pertaining to first time buyers’ relief consist of, but are not limited to:
- the purchaser intends to occupy the dwelling as their only or main residence
- the 3% SDLT surcharge does not apply (on additional residential property)
- the purchaser must not, either alone or with others, have previously acquired a major interest in a dwelling. Or an equivalent interest in land situated anywhere in the world.
Other reliefs
There are also a number of other SDLT reliefs available. Such as relief for alternative property finance relief and alternative finance investment bonds. But we have not summarised those here as these reliefs come across in practice much less often than those above.
What happens if I have already bought the property and submitted my SDLT return?
It is still possible to reclaim SDLT where a transaction has been dealt with incorrectly on the initial SDLT return (SDLT1). We have advised many clients in this regard. You can also claim reliefs at the point of completion. However, only in certain circumstances such as where we have advised clients on the availability of MDR pre purchase.
What next?
In more complex property purchases, it is often important to obtain formal advice. Usually from a specialist tax adviser such as ourselves which your solicitor/conveyancer can rely upon when filing the SDLT return. This is important as an incorrect filing cannot be revoked from HMRC. Instead, the taxpayer has only 12 months to submit an amended return to HMRC.
It has unfortunately been too little too late for many taxpayers. They have found about the reliefs more than 12 months after filing their SDLT returns. Such that it no longer possible, except in very limited circumstances, to amend your SDLT return
In any event, prevention is better than cure. So we do hope that our article provides some food for thought for those of you regularly purchasing properties as both an investment and/or to develop.
Please don’t hesitate to get in touch if you require assistance with SDLT reliefs or other SDLT matters.
