Making the most of SDLT rates

‘How much SDLT will I have to pay?’ is now usually the first question that solicitors are asked by their clients who are purchasing properties. 

It was in 2011 that we first saw different rates applying for residential on the one hand and commercial and mixed use on the other hand.

The first seismic change was in March 2012 when we saw the introduction of a new SDLT rate regime for companies and other non-natural purchasers with the flat rate of 15 per cent for ‘mansions’, that is, properties over £2m. This was accompanied by a 7 per cent SDLT rate for individuals buying mansions. 

These rules were quickly followed by the introduction of the annual tax on enveloped dwellings in April 2013.

Key Points

• It is not always clear how much stamp duty land tax people should be paying
• The pandemic has seen the arrival of a stamp duty holiday for some properties
• It is important to get one's transaction completed before the next deadline

Another major change came in 2014 when SDLT was changed from being a single percentage based on the total purchase price of the property, to an incremental system with set bands and a set percentage applied to each band (with a top band of 12 per cent for purchases over £1,500,000).

The next big change came in 2016 when a whole new set of rates were introduced, commonly referred to as ‘the higher rates’ for additional dwellings, which applies to purchasers who already own residential property elsewhere in the world. The top rate payable was increased to 15 per cent.

In both cases the changes resulted in a mad dash by buyers to try to exchange the contracts on their property purchases before the rates changed, with thousands of contracts being exchanged just before midnight on the last day. 

Not all purchasers were able to manage to exchange contracts before the change and many found themselves having to pay considerably more SDLT than anticipated when they began the process of buying their new property.  

Government data; valid up to March 31 2021

For some, the increase was too much and they had to withdraw from their purchases. Some managed to agree with the seller to share the additional unexpected charge in order to keep the property chain together and some sellers who did not want to lose their buyers agreed to reduce the price to nullify the additional SDLT charge on their buyers.       

The increase in SDLT rates has for many people become a financial hindrance to moving up the property ladder and there has, particularly since the new higher rates were introduced, been calls for the SDLT regime to be reviewed and rates reduced to revive what became a rather stagnated market as a result of Brexit and the surrounding uncertainty and the introduction of the higher rates. 

Market kickstart

With the arrival of the pandemic and the end of the first national lockdown, a much-awaited SDLT reduction has been introduced – although only for a fairly short period of time as it expires on March 31 2021. 

The first band on the lower rate scale has been increased so that the rate is 0 per cent up to £500,000 and on the higher rate scale is 3 per cent on properties up to £500,000. In each case, the result is a £15,000 saving. 

This has had the desired effect of igniting the residential property market and estate agents have been inundated with enquiries since the first national lockdown ended and the property market seems to have received the jump start it needed. 

However, it seems that history will repeat itself and buyers will once again face the challenge of racing to ensure that their property purchase completes before March 31 2021 so that they can take advantage of the stamp duty saving.

This means that there is once again a cliff edge of a deadline, which some purchasers, through no fault of their own, may fail to be able to reach. 

Completions may for example be delayed if the signed legal paperwork gets lost in the post or mortgage offers have not been received in time because the banks are already struggling to keep up with demand, if either party becomes ill and unable to move on the agreed date, the removal van breaks down or a national lockdown prevents people being permitted to move.   

There are concerns that purchasers even now may fail to achieve a completion of their property purchase with all things being well before March 31 2021, and certainly for those who only start looking for new properties in the new year and who need a mortgage the deadline may be even harder to meet.

What should buyers do?

They would be well advised to seek assistance from mortgage brokers who will deal with their mortgage applications for them and ensure that there are no delays in the application process due to any information required by the bank not being provided or forms not being completed correctly.    

They should also avoid agreeing to completion dates near to March 31 2021 and if that cannot be avoided it would be sensible for purchasers who do have a completion date agreed near to the March deadline to have an absolute right to withdraw from the contract and have their deposit returned to them should the seller fail to complete on the agreed day or if completion is delayed for reasons outside their control. 

Alternatively, they could have a clause in their contract requiring the seller to pay the additional SDLT payable should the seller cause a delay to the completion beyond March 31.   

They should also make it very clear that their offer is very much dependent on completion taking place before March 31.

There are now calls for the government to extend the SDLT holiday to give purchasers more time to take advantage of it. 

This seems particularly relevant now as we go into a second national lockdown, which, while it is not preventing people from moving at the moment, it may have an effect on people’s motivation and desire to have viewings of their property.  

In previous years there has been a transition period so that as long as you had exchanged contracts before the deadline you could complete afterwards and still pay the lower rates. 

There are calls for there to be a transition period here too so that as long as you have exchanged your contract before March 31 you can pay the reduced SDLT rates on completion.

This will give purchasers a bit more time because as long as their mortgage offer comes through before that date they should be able to facilitate an exchange of contracts with a completion at a convenient time to be agreed thereafter. 

In addition, not only will there be the end of the SDLT holiday on March 31 but April 1 will also see the introduction of the additional 2 per cent surcharge of SDLT payable by overseas buyers. 

Therefore, buyers both nationally and internationally will all be seeking to complete their property purchase by March 31, which really is likely to send the property market into complete chaos for the month of March and bring about the inevitable decline in activity immediately thereafter – as was the case in 2016.

Lucy Barber is partner and head of residential property at law firm Forsters