The SDLT Series - Part 1 - 100% exemption
You'll be glad to hear that at long last we are finally putting together our Stamp Duty Land Tax series!
This won't be any of the boring stuff around rates and how it works, this is going straight into the VERY valuable relief and exemptions that are available. And, we're starting with the big stuff first - 100% exemptions. That's right absolutely zero SDLT on the purchase of a residential property.
These aren't schemes or aggressive planning, they are exemptions HMRC have put in place, to help facilitate the housing market. Which makes sense really! However, most people are not aware of these exemptions, meaning a lot of overpaid tax.
With each SDLT exemption I'll also include the link to the HMRC manuals which set out the rules in more detail. There are a number of 100% exemptions, but as they come with various caveats and conditions I have split out and will explain each one separately. So look out for further blog posts.
So onto the first 100% exemption.
Purchase of a residential property by a property trader from personal representatives
This is a 100% exemption. If you meet the various conditions then you will pay ZERO SDLT. You'll still have to complete a SDLT1 form though claiming the relief.
The conditions are:
1. As you can see from the title the property should be a residential property. I'm not going to go into the details about the definition of a residential property (we'll save this for another time). In most cases this will be obvious.
2. You must be a property trader. What is a property trader? The definition is:
a. You must a Ltd company or LLP. I'm afraid individuals or general partnerships do not
b. The business undertakes the buying and selling properties. So in most cases there
will be a track record of the company flipping properties. So this relief is not for buy and
3. The purchase must be from personal representatives. What does this mean? It's probate property. A house which someone has lived in, then passed away and their estate is in charge of the property and they have decided to sell it. On the contract for sale it will note that the property is being sold by "Joe Bloggs acting as personal representatives for A Deceased."
The important point to note here is that if the house has been appointed to its beneficiaries and they subsequently sell the property then this relief is not available for the purchaser. It's quite common for the beneficiaries to be appointed property and then sell it, so this is where the position should be reviewed to ensure the purchaser knows exactly who they are buying from.
4. For the property in question the deceased individual must have occupied the dwelling as their main residence at some time in the two years ending with the date of their death. This is where it will be important to get the correct facts in place when claiming this 100% exemption. For our clients we help formulate a list of questions to put towards the vendor's solicitor to make sure these points are covered off when claiming the exemption.
5. As a reminder this relief is for property traders i.e. flipping companies, not buy and hold companies. And this exemption will be withdrawn if the property trader grants a lease or licence on the property . In addition the relief will be withdrawn if the property trader permits employees to occupy the property.
6. Another important criteria to get right is the maximum permitted on the refurbishment of the property. HMRC understand that some properties will require a refurbishment, prior to selling. However, they do put limits in place.
For the acquired property the maximum amount permitted in relation to the refurbishment is £10,000 or 5% of the purchase price, whichever is greater, up to a maximum of £20,000. For these purposes refurbishment means carrying out works that enhance the value, but it does NOT include cleaning or work to ensure it meets minimum safety standards.
So, to summarise there are a number of conditions that need to be meet to claim the 100% relief, but if all ticked off the end result is a 100% SDLT exemption, which can equate to significant tax savings. We work with clients to ensure they make a correct claim or where clients have potentially overpaid SDLT, we claim a refund from HMRC.
If you want to know more please take a look at HMRC link.
Part 2 of our SDLT series, giving details on another 100% exemption will be coming soon.
I hope this has been helpful. Please do get in touch with any questions or queries.