Stamp Duty Land Tax (SDLT) can be a significant expense for property investors and developers in England and Northern Ireland. However, by understanding and correctly applying the relevant tax reliefs, it is possible to significantly reduce the amount of SDLT that needs to be paid. In this article we outline the top 5 SDLT reliefs that you need to be familiar with.
Multiple Dwellings Relief (MDR)
MDR is available on transactions that involve the purchase of more than one dwelling in a single transaction or in a series of linked transactions. The relief ensures the buyer does not pay SDLT at a higher rate than if the dwellings were bought separately. MDR will be available on most transactions that include multiple residential dwellings whether there is also non-residential property in one or more of the transactions. There may be significant tax savings where dwellings are acquired together with non-residential properties.
Chain Breaker Relief
Developers sometimes offer purchasers the opportunity to part-exchange their existing house for a new property. This provides a developer which is a house building company with a sale where the vendors sale has fallen through or where they are having difficulty securing a sale. Under normal circumstances the developer would be treated as acquiring the property at its market value and would be liable to SDLT on that price. However, in a part-exchange, the purchase of the house by the house builder or property trader is exempt from SDLT as long as the vendor has lived in the property offered in part exchange as his or her only or main residence at some point in the two years prior to the part-exchange, and they buy a new home from the house building company that they intend to live in as their only or main residence. The relief applies to land taken in exchange with the house up to a limit of 0.5 hectares.
Group Relief
This relief is available for SDLT for property and land transfers between companies that are members of the same group. Companies qualify as members of the same group if one is the 75% subsidiary of the other or both are 75% subsidiaries of a third company. The companies must also be bodies corporate to qualify for group relief and SDLT groups cannot be formed merely through common individual shareholders. The relief ensures that no SDLT is payable where the economic ownership is not changing. The relief is particularly useful where a company wishes to restructure its business.
Relief from the 15% Rate of SDLT
SDLT is charged at 15% on residential properties costing more than £500,000 bought by certain corporate bodies or ‘non-natural persons’, which include companies and partnerships where one or more of the partners is a company. There are a number of conditions where reliefs apply, although care is needed to ensure precise qualification, otherwise 15% tax will be payable.
Relief from the charge may be available if the property is:
- Used in a property rental business.
- Bought by a property developer or trader.
- Used in a trade involving making the property available to the public.
- Bought by a financial institution in the course of lending.
- Occupied by employees of the purchaser.
- A farmhouse.
- Bought by a qualifying housing co-operative.
Sub-Sale Relief
If a buyer agrees to a land transaction but transfers the rights to a third party (through a sub-sale or assignment) before completion, then there are deemed to be two transactions, where both buyers are technically liable for SDLT returns and payments.
In this scenario the first buyer can claim Sub-sale Relief, provided that the arrangements were not executed as part of a tax avoidance scheme.
This relief can be valuable where the ultimate purchaser wishes to remain anonymous and where an intermediary is employed to secure planning permission in a development transaction. It is designed to ensure that SDLT is only paid by the end transferee, the person who actually ends up acquiring the property.
Conclusion & Next Steps
The rules and regulations regarding SDLT tax reliefs can be complex, however, navigating the regulations and requirements correctly can save you lots of money and give you peace of mind. Menzies team of property experts can help to ensure you are taking advantage of all available relief opportunities, whilst remaining fully compliant with tax laws. By helping our clients to structure property investments for maximum tax efficiency, we save them valuable time and money and make sure that costly mistakes are avoided. For more information about applying any of these tax reliefs or help and advice with any tax concerns, please get in touch with our property team today.
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