Summer Statement: Opportunity for tax planning following Stamp Duty Land Tax (SDLT) holiday announcement

22.07.2020
Shaun Davison
Tax

The Chancellor of the Exchequer, Rishi Sunak, announced a string of measures in the recent summer statement, including a temporary change to Stamp Duty Land Tax (SDLT) with the aim to stimulate the property market during the coronavirus pandemic.

The outlook for the housing market is closely linked to consumer confidence and therefore central to the economic recovery. The Chancellor has therefore stepped in with a temporary change to SDLT, which takes effect for residential property completions from 8 July 2020, to help stimulate the property market.

The change increases the threshold at which you do not pay SDLT in England and Northern Ireland from £125,000 to £500,000 for the period 8 July 2020 to 31 March 2021 inclusive. As the SDLT legislation is devolved, this does not apply to land transactions in Wales and Scotland.

With an average selling price in East Anglia of £230,000 1, this would mean that buyers would not be required to pay any SDLT on a similar transaction completing within this period – a saving of £2,100.

The increase in the SDLT threshold will not only benefit buyers purchasing residential properties up to the value of £500,000, however, will also benefit residential properties purchases in excess of this amount. A house buyer purchasing a home of £600,000 would save £15,000 in SDLT and only required to pay £5,000.

The online calculator can be used to determine the amount of SDLT payable for straightforward transactions.

In an interesting stance, HMRC have also confirmed that the threshold increase will apply to those who buy additional residential properties, including companies, which may provide advantageous tax planning opportunities where SDLT has previously been a barrier.

Additional properties purchased with consideration up to the value of £500,000 will only attract the 3% additional rate during the SDLT holiday period, which will be a surprise boost to buy-to-let investors who wish to expand on their investment property portfolio or incorporate their letting business.

Example

A buy-to-let investor who holds a residential investment property with a market value of £400,000 decides to envelope the property into a company, to take advantage of the lower corporation tax rates and mortgage interest relief.

Prior to the SDLT holiday, £22,000 would have been payable on incorporation, however, this is now reduced to £12,000 for transactions completing on or before 31 March 2021 - a reduction of nearly half of the SDLT payment, which could make a difference to an investor’s decision to incorporate the letting business.

For property transactions in excess of £500,000, the SDLT savings are £15,000.

Investors will need to be mindful of the usual pitfalls that come with enveloping a property, such as the Capital Gains Tax (CGT) on transfer into the company and SDLT anti-avoidance legislation, which levies a 15% SDLT liability on non-commercial residential properties that are purchased by companies or other non-natural persons. Investors will also need to obtain independent advice whether a corporate structure is the best vehicle for their business.

Overall, these measures will certainly help bolster confidence within a nervous property market, benefiting both buyers and sellers, as well as providing tax planning opportunities where it has previously been too costly.

Individuals will need to act promptly within the limited timescale to take advantage of such planning opportunities.

If you have any questions or would like to discuss in more detail

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