Stamp Duty Land Tax (SDLT): Temporary exemption for residential property costing not more than £175,000

The Chancellor of the Exchequer announced that from 3 September he will introduce a temporary exemption ('holiday') from SDLT for acquisitions of residential property worth not more than £175,000.

The exemption will be available where the effective date of the land transaction (normally the date of completion) is on or after 3 September 2008 and before 3 September 2009. There are no circumstances in which this exemption will be available for any land transactions either before 3 September 2008 or after 2 September 2009. The enabling legislation is SI2008/2339.

Q1. Who can claim the exemption?

A. Anyone can claim this exemption. It applies, not to people, but to property types. Basically this measure exempts anyone purchasing a residential property worth not more than £175,000 from paying SDLT.

Q2. How will the exemption work?

A.

• The exemption applies to certain acquisitions made on or after 3 September 2008 but before 3 September 2009.
• It covers acquisitions of major interests in land (other than grants of leases for less than 21 years or the assignment of leases with less than 21 years to run).
  
  These must:
• consist entirely of residential property; and
• be for a total chargeable consideration of not more than £175,000.

There is no change to the way that leases are taxed - just an increase in thresholds for residential leases (other than those excluded above). The premium can benefit from a £175,000 consideration threshold for the 0 per cent rate and the Net Present Value (NPV) of the rents is only taxed on sums exceeding the £175,000 NPV threshold. At no time should the premium be added to the NPV to calculate the tax.

Q3. Why only residential property?

A. Because the Government wants to demonstrate its support for homebuyers and the housing market. Commercial properties were not intended to be covered by this exemption.

Q3A. What is 'residential property'?

A. A building which is either used as a dwelling, suitable for use as a dwelling or in the process of conversion to a dwelling at the time of purchase. The definition includes land that is, or forms part of, the garden or grounds of such a building (including any building or structure on the land) up to the 'permitted area' (normally 0.5 hectare).

Q3B. What about property which is mixed ie partly residential and partly non-residential for example a shop with a flat above?

A. Property which is partly residential and partly non-residential does not qualify for the exemption. This should be notified as usual and will benefit from the present £150,000 threshold.

Q4. I am purchasing a mixed residential property. Why is it excluded from the relief?

A. Because the exemption is specifically targeted to help people wishing to enter the residential property market.

Q5. I am buying a wholly residential property on a mixed use development. Can I benefit from the exemption?

A. Yes, you can. It is the property type that matters and not the nature of the whole development.

Q6. Why is the exemption available for property worth only up to £175,000?

A. The Government wants to help people entering the property market. In directing help to those who need it most, they decided that those who could afford a property above this level don’t need help in paying SDLT.

Q7. Why is this exemption only for a year?

A. Because it has been introduced to show the Government’s support for homebuyers and the housing market, following the recent downturn. It’s a one-off, time-limited exemption.

Q8. I completed purchase of my home on 2 September why won’t you let me claim the exemption?

A. The exemption is time specific and only applies to transactions with an effective date on or after 3 September 2008 and before 3 September 2009.

Q9. Do I still need to complete a return for the purchase?

A. Yes. All transactions with a consideration of £40,000 or more must be notified on an SDLT return.

Q10. I don’t need to complete a return for any other exemption. Why do I need to for this one?

A. Because there is a specific requirement to do so. See SI2008/2338.

Q11. How do I complete the return?

A. Simply complete it as normal. In Field 14, where you’re asked to enter the total amount of tax due, either leave the field blank or insert ’0’.

Q12. Why doesn’t this exemption help those in Scotland who may be on short leases under 21 years?

A. The exemption is targeted at helping those who are purchasing a major interest in residential property across the UK, rather than at those leasing property for short periods. There are very few leases for residential property available for less than 21 years, even in Scotland, and these are likely to be for amounts that don’t attract SDLT.

Q13. What happens if a purchaser is also entitled to a relief eg DAR or zero-carbon homes?

A. A purchaser can’t claim this new exemption in addition to any other relief. If they qualify for the exemption plus other relief(s) they should claim the one that benefits them most. For example:

• A purchaser buys a property where DAR applies (threshold £150,000); and
• meets the criteria for the new exemption (threshold 175, 000)

The purchaser benefits most by using the SDLT holiday.

Q14. Can I add together entitlements to this exemption and other reliefs eg relief for DAR allows £150,000 and this new exemption allows up to £175,000 so total applicable exemption threshold is £325,000?

A. No. You can’t add this exemption and relief’s together. This exemption has an upper threshold. So, if a house is purchased for £175,100, it would not apply. But if the house was purchased for £174,900, it would.

Q15. How does the exemption apply to leases?

A. It applies to residential leaseholds granted during the period when the exemption is available. Residential property which is leased and where the net present value of rent is below £175,000 will not have to pay any SDLT on the rental element where the term granted is at least 21 years: and any premium will be treated in the same way as the consideration for a freehold residential property.

But it should be noted that if the NPV exceeds £175,000 then the sum that is taxable at the 1 per cent rate will be the amount by which the NPV exceeds the residential threshold of £125,000. So an NPV of £175,000 will be able to benefit from the exemption, but an NPV of £176,000 will attract tax of £510, ie 1 per cent of £176,000 minus £125,000

Q16. When will the online calculators reflect these immediate changes?

A. They already do with the exceptions noted on the landing page.

Q17. Does the SDLT holiday include a change of equity where a purchaser is taking on assumption of debt? And if so, is the threshold £125,000 or £175, 000?

A. The raising of the threshold applies to all transactions in wholly residential property other than those specifically excluded (see Q2). .As the type of consideration is immaterial, the same rule applies to consideration consisting wholly (or partly) of the assumption of debt.

Q18. I’m going to enter into a contract before 2 September 2009 Will I be able to claim the exemption if I complete after that date?

A. No - unless there was ‘substantial performance’ (payment of 90 per cent of the price or physically moving in) on or before 2 September 2009. The exemption depends on the effective date (normally the completion date) not the date of the contract.