Following the end of March many conveyancers would be forgiven for being happy to never hear or talk about SDLT again. But, says one firm, SDLT is something which should always be given due consideration.
The warning comes from Relatus, a specialist in SDLT who say incorrectly calculating SDLT can result in costly penalties and potential negligence claims for firms. They have provided a short checklist for firms to consider when it comes to SDLT calculations.
Higher Rate Surcharge
The higher rate 3% surcharge was introduced in 2016 and from 1st April 2025 the rates have further increased on a tiered basis.
Up to £125,000 – 5%
The next £125,000 (the portion from £125,001 to £250,000) – 7%
The next £675,000 (the portion from £250,001 to £925,000) – 10%
The next £575,000 (the portion from £925,001 to £1.5 million) – 15%
The remaining amount (the portion above £1.5 million) – 17%
Second home ownership is well documented, but Relatus have issued a reminder that any purchase by individuals which results in any of the purchasers, or their spouses, owning an interest (could be co ownership) in more than one residential property (which has a value above £40,000) anywhere in the world.
Main Residence
To avoid initial payment of the higher rate a purchaser must dispose of (sell or transfer) a major interest in a property they lived in as their previous main residence on the same day as, or in the 3 years preceding, the purchase of their new main residence. To qualify as their previous main residence the purchasers must have lived in that property as their only or main residence at some point during the 3 year period leading to its sale.
Consider a client who has a number of buy to let properties, is purchasing a new property which they intend to live in and has recently sold a property they once lived in as their main home. It appears the new purchase will be a replacement of a previous main residence due to the fact they sold a property which used to be their home, however, for the last 10 years the purchasers have lived in a property they rent abroad whilst the UK previous main residence was rented out prior to its sale. This means that the purchase will not be a replacement of the previous main residence because they had not lived in the sold UK property as their main residence at some point during the 3 years immediately preceding the sale, meaning the higher rate will apply.
Multiple and subsidiary dwellings
The abolition of Multiple Dwelling Relief on 1st June 2024 (in England) went largely under the radar and you may think that this is no longer an issue, but, says Louise Wise, it is still relevant to the higher rate. It can be a complicated task to ascertain whether a property will be classed as 2 or more dwellings and, if so, whether the second dwelling (within the curtilage) could be considered to be a Subsidiary Dwelling and thereby not count as a second property in order to negate the higher rate.
She adds for Welsh transactions Multiple Dwelling Relief is still applicable after 7th February 2025 but only if the second property is NOT a subsidiary dwelling.
Non-residential SDLT
There are occasions when a purchase of a residential property will not be liable to the residential rate of SDLT.
A purchase consisting of 6 or more dwellings allows the purchaser to elect to pay the non-residential rate of SDLT. For a company or an individual with additional properties this could reduce their SDLT payment significantly. There are strict criteria against which the property is to be assessed provided by HMRC (not straight forward says Wise) and a careful assessment will be necessary to avoid any pitfalls.
The recent case of Andrei Tretyakov v HMRC has highlighted the dangers of mixed use classification with the decision making it clear commercial use will not trump suitability for use as a dwelling and resulted in an additional £484,250 in SDLT. It is sometimes possible to class a property as mixed use if there is land which does not form part of the garden and grounds of the residential property. This is also an area fraught with danger and there are a number of Tribunal decisions finding against the taxpayer. The fact a property has a paddock which a neighbour uses for his horse will be unlikely to pass the test for mixed use adds Wise, warning conveyancers must be wary of of claims by purchasers they should be paying the non-residential rate of SDLT.
Non Residents
If any of the purchasers are not resident in the UK then a 2% surcharge will apply to the purchase of residential property. The purchaser is deemed resident providing they (or interestingly their spouse) has spent more than 183 days in the UK during the 12 months immediately preceding a transaction.
“It will not always be easy to assess the correct rate of SDLT and if HMRC take a contrary view your client will not only be faced with an additional SDLT payment but will also be charged interest and could face penalties which can be as high as 100% of the underpaid tax.”
concludes Wise, adding
“Seeking expert advice will protect conveyancers from a potential negligence claim should there be any penalties, interest and over/underpayment of tax.”
