3 examples of cliff edges in Stamp Duty

Posted 17th February 2022 by ctatax-admin

Reading Keith Gordon’s excellent article about cliff edges in the tax system the other day got me, as a Stamp Duty practitioner, thinking about the kind of cliff edges there are in SDLT.  When you consider the significant drops in rate or tax bill that are available to the informed property purchaser it turns out that there are quite a few and in some cases it is definitely worth making the leap!

The difference between residential property and mixed-use property can be dramatic  – the rate literally drops from 15% (from 2021 to 17% for a non-resident) to 5% and can even be further reduced by claiming multiple dwellings relief.

Example 1:

John buys a property in the country as a second home for £2.5m. He currently would pay £263,750 (£288,750 post-holiday) but if the property is not wholly residential then the tax bill would fall to £114,500 and this represents a saving of over half the tax! 

That’s a cliff you might want to jump off…

Similarly, even with basic residential properties, claiming multiple dwellings relief could save an additional £10,000 to £87,000 depending on the price of the main dwelling.

For the Property Development Sector, claims to Multiple Dwellings Relief can often achieve tax reductions from the commercial rate of 5% to as little as 1% if multiple dwellings is available that’s an 80% fall!

Over and above these dramatic rate and tax bill changes there are some cliffs which are, in mathematical terms bottomless – these are the 40 plus Reliefs which afford complete exemption from SDLT  – yes you have heard it here first! – Stamp Duty can be £nil and still be completely correct!

Read our guide on how to tell if you’ve overpaid on Stamp Duty Land Tax

Example 2:

Company A has property which it wishes to transfer to company B they are under common ownership if the property is worth £4m tax of £190,000 would be due based on its market value but if instead of being in common control they are in common ownership ie members of the same corporate group and group relief is available and the tax falls to nil.

All because of a simple evaluation of the proper corporate structure.

Read our article in Financial Reporter about how 25% of homeowners could have overpaid on Stamp Duty Land Tax.

Example 2:

Joseph and Mary want to incorporate their 4 buy to let properties (Val  £1m) because of the special rules on partnerships the tax is £nil but if Joseph held the portfolio in his sole name the tax would have been £30,000! (post-holiday £40,000)

I’m not going to attempt here to list all of the possible reliefs that give a nil tax result but suffice it to say that there are reliefs which are available such as the above depending on the status of:

• the buyer or transferee
• both the seller and the buyer for example probate relief, chain break relief, or part exchange relief
• charities relief which apply to persons who would not normally consider themselves registered charities.

And many others.

And so even for the most basic purchase, significant reductions in the first (guesstimated) figure of SDLT can be achieved by proper analysis, with a little more attention to detail and consulting an appropriate experienced adviser

As Keith Gordon put it “and if a critic ever suggests that professional advice should not have been followed simply because the advice was too good to be true, I would say that the critic is either being unfair or has a very poor understanding as to how tax actually works”.

As it is for taxes it is especially so for Stamp Duty Land Tax.