Summary of Government changes produced by Prager Metis LLP – 9 July 2020

COVID 19 News and Updates – UK | Prager Metis | Jul 09, 2020

What we know

Rishi Sunak, the Chancellor of the Exchequer, has today announced a reduction in SDLT (tax that is due on the buyer of property) on all residential property purchases with a value of no more than £500,000.  The change is effective immediately and will last until 31 March 2021.

The new SDLT rates for those not owning additional properties are as follows.

Property or lease premium or transfer value SDLT rate
Up to £500,000 Zero
The next £425,000 (the portion from £500,001 to £925,000) 5%
The next £575,000 (the portion from £925,001 to £1.5 million) 10%
The remaining amounting (the portion above £1.5 million) 12%

 

Previously, there was no SDLT payable on the first £125,000 where a person had previously owned a residential property.  For a first time home-buyer, the threshold at which no SDLT was payable was £300,000.  It is hoped that the increased threshold up to £500,000 will kick start a flagging housing market by increasing activity.

What about those owning additional properties?

For those owning more than one property, the 0% SDLT rate will not apply on the first £500,000.  The person will still be liable to the 3% surcharge.  The rates applicable are as follows.

Property or lease premium or transfer value SDLT rate
Up to £500,000 3%
The next £425,000 (the portion from £500,001 to £925,000) 8%
The next £575,000 (the portion from £925,001 to £1.5 million) 13%
The remaining amounting (the portion above £1.5 million) 15%

 

By way of an illustration, a first-time buyer who acquires a residential property for £500,000 will not pay any SDLT.  In contrast, an individual who acquires a second property for £500,000 will pay SDLT of 3% on this value to give SDLT payable of £15,000.

What about companies acquiring residential property?

The above changes will apply to companies also but there will be additional tax issues to consider such as ATED which is an annual tax on properties held in companies with a value of £500,000 or more.

Where a company is used to acquire residential property, advice should be sought first.