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Some common misconceptions about the Stamp Duty land Tax (SDLT)

SDLT is the tax that must be paid on purchase of property in the UK. The rates of the SDLT differ according to the price of property and the purpose of purchase, e.g. residential or commercial. There are, however, some misconceptions related to payment of SDLT. This article clears these misconceptions while covering some of the common queries that theIBISS & CO team often receive regarding its terms and payment.

  • SDLT on Transfer of property between spouses or civil partners.

While there are tax reliefs offered in capital gains after sale of property, a transfer of property between spouses or civil partners has no exemptions or reliefs. Therefore, if a property is gifted by a spouse or civil partner, no SDLT is applied, unless the property is mortgaged. In case the property is mortgaged and the debt is assumed by the transferee spouse or civil partner, it becomes a chargeable concern, over which, SDLT will be applicable.  

  • SDLT on Additional dwellings:

If the property being transferred is an additional dwelling, they are not subjected to higher rates. An additional tax of 3{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af} will not be charged on it. In case there is any liability involved, it will remain the same at the ongoing rate. 

However, if you own two or more dwellings, you will have to pay higher rates for additional dwellings. If you do not already own any property and purchase a buy to let property, you will not have to pay the higher rate. An additional SDLT of 3{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af} will be applied on any purchase that follows this, even if it is for residential purposes. 

  • Time of purchase and SDLT

When the time of purchase of an additional property is paired with the sale of your main residence, it can have an impact on SDLT.  E.g. If you plan to purchase additional property, you will have to pay a higher rate of SDLT. But when this is paired with the replacement of your residence, the tax exemption due to replacement will set off against the higher rate of purchasing additional property.  This way, you will end up paying less.

  • Linked transactions and their impact on SDLT

When two or more transactions are linked, they can increase the overall SDLT.  This is because these transactions are combined and are treated as a single transaction, and only benefit from one 0{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af} band. However in some cases, these linked transactions can reduce the tax liability.  This is the case when you purchase more than one dwellings and can avail multiple dwellings relief.  Also, if the transactions are of both residential and commercial nature, e.g. you are buying both residential and commercial property; you will be taxed on non residential rates.

  • Impact on SDLT if additional dwellings are purchased as part of main residence. 

SDLT here can be reduced as part of a multiple dwellings relief. According to the “granny annex “law, a band of more than 0{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af} can be utilized upon purchase of multiple dwellings. This is only possible where the cost of annex or annexes is less than one third of the overall cost of property.  This way, claims of multiple dwellings can reduce the overall liability and result in a lower SDLT.  

In case the cost of annex or annexes is more than one third of the cost of property, each annex will be a separate dwelling and will be subjected to a 3{f5c46dbfd7a370437117a81398f3ac99c38e148024d17c03e20eb6cfc854a7af} SDLT.

  • Impact on SDLT when a transfer takes place from partnerships to connected companies.

In such cases, there are no specific reliefs. The tax liability due to such transactions is calculated through a formula. The result of calculation through such transfers is usually £nil. If the result is Nil, the transaction can enjoy an exemption of SDLT. This exemption is not specific to partnerships, but is general and is applicable to all transactions.

  • Impact on SDLT on transfers of shares to property companies.

    SDLT tax is applicable where shares are transferred in a property company. This is not the same as a capital gains tax,   where a charge has been assigned to companies that are property rich. Stamp duty in transfer of shares remains limited to yearly tax on enveloped dwellings and de grouping of stamp duty.
  • Confused or concerned about Stamp  Duty Land Tax (SDLT) on any property transaction? Book an initial consultation with IBISS & Co today. Our experienced team of specialist tax advisers and accountants will be happy to discuss ways in which to ensure that you pay an accurate amount of SDLT by claiming all possible reliefs.
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