Stamp Duty Land Tax (“SDLT”) arises on most property transactions but have you considered whether you have paid the correct amount of tax?
We have seen a number of clients overpaying their SDLT liability as they were unaware that their recent property purchase qualified for a relief.
We’re sure you will have seen in the media a rise in the number of SDLT avoidance schemes and HMRC’s crackdown on individuals who purchased ‘off the shelf’ schemes.
At Hillier Hopkins we do not offer any such schemes and we would never recommend that our clients enter into such arrangements. Instead, we offer a number of legitimate methods to reduce your SDLT bill in line with the current legislation.
We have had considerable success with the four avenues below and these have enabled our clients to either avoid overpaying in the first place or claim a repayment after the event.
The four ways are:
- Avoidance of the Higher Rate Charge (“HRC”) on additional property purchases;
- Multiple Dwellings Relief (“MDR”);and
- Non-residential rates for uninhabited properties
The above avenues do not involve a number of complex transactions or inserting artificial holding companies or similar. They are based on the application of the rules as set out in Finance Act and your SDLT bill can be significantly reduced by simply identifying that you are eligible for them.
1. Avoidance of the HRC on additional property purchases
The HRC has been around for a while now but it is still extremely unpopular with purchasers as it significantly increases a SDLT liability.
Under certain circumstances, it may be possible to avoid the additional charge.
We have successfully claimed refunds for many of our clients, for example, we recently had a £600,000 purchase where we successfully removed the 3% charge, thus resulting in a refund of £18,000.
We may be able to help you if you have:-
- Bought (or are buying) a property to be your main residence on which you paid (or are expecting to pay) the additional 3% charge; and
- Previously sold a residence
If you are buying through a company, purchases of residential property are automatically caught. However, property’s classed as mixed-use or non-residential are outside the scope of the charge.
This part of the legislation presents the opportunity to apply non-residential SDLT rates to what may previously have been considered to be a residential property.
This relief has the biggest potential savings because the non-residential property rates of SDLT are significantly lower than the residential rates. We have successfully reclaimed £375,000 on a single purchase.
Under the legislation if any of the purchase contains a commercial element, then the whole purchase is ‘tainted’ and, as a result, the whole purchase price can benefit from the lower rates.
Furthermore, commercial property does not suffer the higher rate charge so if the second property purchased is deemed to have mixed use then the 3% charge would not apply.
We have had success in claiming refunds for a number of clients in this area and examples of the types of commercial use within what would normally be considered to be a residential property may include:
- Shops with flats above;
- Selling home brewed cider;
- Grazing licences or land used for farming
- Significant installation of solar panels; and
- Excess land purchased along with the property.
There are numerous other scenarios that may qualify and each purchase should be reviewed on the facts with evidence required to support the claim.
3. Multiple Dwelling Relief (“MDR”)
This is our bread and butter and the relief does what it says on the tin – if you purchase multiple properties in one transaction you can claim a relief on the total SDLT payable.
The mechanism of relief is, rather than paying SDLT on the overall purchase consideration, the purchase price is divided by the number of properties. This results in SDLT being calculated on each individual property. The key is identifying whether more than one property was purchased.
Most people would easily be able to identify when two houses are purchased, but have you considered your converted garage, outhouse or granny flat?
As with any relief there are a number of criteria that must be met to ensure your additional property qualifies.
Does it have facilities to be used independently from your main house?
For example does it have an area which can be used as bedroom, washing facilities and an area to prepare food?
Is the second property subsidiary to the main building?
To be a subsidiary dwelling the second property must be less than 1/3 of the size or value of main building.
We have had success using both the floor space and value of the property (if a separate valuation can be obtained).
MDR can still be applied if the second property has facilities to be independent from the main house but does not qualify as a subsidiary to the main building, but the higher rate charge would apply to the purchase.
A transaction totalling £1.71m contains one main property and a converted garage (which can be used independently and is deemed to be subsidiary).
Most people would calculate the SDLT on the £1.71m giving a liability of £116,450.
However, under MDR, the £1.71m is divided by two (the number of properties), and the SDLT is calculated on two purchases of £855,000.
The liability is reduced to £60,500 resulting in a saving of £55,950.
4. Non-residential rates for uninhabited properties
In January 2019, HMRC lost a case at the First Tier Tax Tribunal which has widened the window of opportunity for residential property purchases to be classed as non-residential.
These purchases benefit not only from lower SDLT rates but they are also not subject the HRC.
Please click here for our review of the case.
Time frame to make a claim
The time frame to claim a refund of SDLT is relatively short – generally 12 months from the date the SDLT1 was submitted to HMRC.
Typically this means a maximum of 13 months from the date of purchase to make the claim.
From 1 March 2019 the filing deadline was reduced from 30 days to 14 days. This has shortened the claim deadline by 2 weeks.
It is possible to extend this to 4 years in some cases, however, it can be difficult to argue the extension so it is best to deal with a claim within the normal 12 month window referred to above when possible.
Therefore, if you believe we will able to assist you with a claim please send us the information as soon as possible, before you are out of time.
SDLT is a specialist area and advice should always be obtained before submitting a claim. Hillier Hopkins LLP have extensive experience here and can assist with determining if your purchase qualifies for a valuable relief and whether the claim will be successful. Speak to one of our experts on +44 (0)330 024 3200.