Understanding Recent Changes to Stamp Duty Land Tax (SDLT)
As of July 24, significant transformations in the UK housing market have been noted, particularly due to the impact of lockdown measures. June marked a notable shift, revealing negative annual growth in house prices for the first time since 2012. However, the landscape has shifted as the market begins to recover.
Temporary SDLT Cut Overview
A pivotal development has been the temporary adjustment to the Stamp Duty Land Tax (SDLT). The threshold for the standard residential property value at which this tax is applied has increased from £125,000 to £500,000. This modification means buyers currently pay 0% SDLT on the initial £500,000 of their property purchase price. For any amount exceeding this threshold, the original rates apply.
Application Timeline for Reduced Rates
The temporary SDLT rates are applicable to property transactions that are completed or substantially performed between July 8, 2020, and March 31, 2021. Transactions finalised before July 8, 2020, do not qualify for these reduced rates.
It is also important to note the stipulation regarding the 3% additional charge, which is applicable if the chargeable consideration exceeds £40,000:
- Transactions under £40,000 are not subject to the 3% additional charge and are non-notifiable.
- For consideration exceeding £40,000, the 3% charge is applicable to the total amount, provided all other conditions are met.
Implications for Second Homes
For buyers purchasing additional dwellings, such as second homes, the SDLT incurs a higher rate. The current rate for additional dwellings is 3% above the standard residential rates applicable to the full consideration price. With the new temporary rates in effect after July 8, the calculations have been revised. The SDLT higher rates now apply an additional 3% surcharge to the total consideration, layering on the temporarily lowered standard rates.
As a result, effective July 8, the SDLT rate for second homes includes:
- 3% on the entirety of the first £500,000.
- 8% for properties valued between £500,000 and £925,000.
This contrasts starkly with the previous structure, which imposed varying rates of 3% under £125,000, and 5% for values ranging from £125,000 to £250,000, and so on.
Conclusion
The aforementioned changes present significant implications for both first-time buyers and investors eyeing second homes in the current landscape. By increasing the threshold for SDLT, the government provides an opportunity for greater affordability in a recovering market. Stakeholders are encouraged to stay abreast of these developments to maximize their benefits when navigating property transactions during this temporary period.
