Stamp Duty and SDLT

Rates

On 23 September 2022, the government increased the nil-rate threshold of SDLT from £125,000 to £250,000 for all purchasers of residential property in England and Northern Ireland and increased the nil-rate threshold paid by first-time buyers from £300,000 to £425,000. The maximum purchase price for which First Time Buyers’ Relief can be claimed was increased from £500,000 to £625,000. The Chancellor subsequently announced that this would be a temporary SDLT reduction. The SDLT cut will remain in place until 31 March 2025 to support the housing market. The government then intends to repeal these changes.

No further changes were announced to stamp duty rates and thresholds. For a table of the main tax rates and allowances for 2024/2025, see here.

SDLT: mixed property purchases and multiple dwellings relief

After a wait of two years, HMRC has finally published its summary of responses to the consultation which closed in February 2022 on potential reform of the SDLT rules for mixed property transactions (i.e. purchases which consist of both residential and non-residential property) and the SDLT relief for purchases of two or more dwellings known as multiple dwellings relief or “MDR”.

The outcome of the consultation for reform of these two areas could not be more different.

Whilst the government has confirmed that it will not be making any changes to the SDLT rules for mixed property purchases, somewhat surprisingly, the government has announced that, rather than taking forward any of the potential options for reform of MDR, the Finance Bill 2024 will abolish MDR entirely.

The abolition of MDR will take effect for transactions with an effective date of 1 June 2024, unless the purchase is pursuant to a contract which was exchanged on or before 6 March 2024 and which has not been varied after 6 March 2024.

Mixed property purchases

Under current SDLT legislation, in most cases, the whole of the chargeable consideration for a mixed property transaction is subject to SDLT at non-residential/mixed property rates (absent a claim to MDR), rather than any part being subject to SDLT at residential rates.

With the highest non-residential/mixed property SDLT rate band being 5% but the highest residential SDLT rate band being as high as 17% (depending on the value of the property and the nature of purchaser), the status quo has led to an SDLT outcome for mixed property which in many cases is highly misaligned with the underlying use of the land, especially where the non-residential element is small. It has also provided an opportunity for purchasers to reduce their SDLT liability through structuring purchases to include a small amount of non-residential property.

The consultation had proposed alternative methods of apportioning between non-residential and residential elements to arrive at an outcome which was objectively fairer and which reduced the scope for incorrect claims or abuse.

In reaching its decision not to proceed with any changes to the SDLT rules for mixed property purchases the government appears to have been swayed by concerns to avoid increasing the administrative burden of the SDLT rules for a broad population of (mostly “good”) taxpayers, as well as HMRC’s successes in challenging unmeritorious claims to mixed property treatment.

Multiple dwellings relief

MDR was introduced in 2011 to promote the supply of private rented housing through reducing the rate of SDLT payable on purchases of multiple residential property so that it is broadly in line with the SDLT which would have been charged when purchasing properties separately.

Alongside the summary of responses, the government has published the outcome of an external evaluation commissioned in February 2023 into the use and effects of MDR. With the benefit of that evaluation, the government has concluded that MDR is not cost effective in achieving its policy aims and is frequently subject to abuse. The evaluation identified a large proportion of claims to MDR being by private individuals purchasing property for personal use, clearly falling outside of the policy objective of supporting investment in the private rented sector. At the same time, the government has interpreted the evaluation as indicating that removing MDR from business purchasers would be unlikely to have any substantial effect on investment in residential property. Rather than take forward any of the potential reforms put forward in the consultation document, the government has decided to abolish MDR entirely.

For business purchasers, whether abolition of MDR could materially increase SDLT liabilities will depend on the circumstances. For transactions involving the purchase of interests in six or more separate dwellings, the increase in SDLT liability should be relatively limited because such transactions would typically qualify for non-residential/mixed property SDLT rates absent a claim to MDR (so an effective rate approaching 5%). However, transactions involving the purchase of two to five separate dwellings and no non-residential property cannot qualify for non-residential/mixed property SDLT rates. For those transactions, the increase in SDLT could be very much higher, given that residential SDLT rate bands can be as high as 17% in certain cases.

First time buyers’ relief

The Spring Budget announced that changes will be introduced to enable individuals who purchase new leases using nominee or bare trust arrangements to be able to claim First-time Buyers’ Relief from Stamp Duty Land Tax and ensure that individuals who have used such arrangements in the past are unable to claim the relief on future purchases made in their own name.

The changes will take effect from 6 March 2024. Where contracts are exchanged on or before 6 March 2024, transitional rules may apply subject to conditions.