Pictured: Emma Dancer
Some residential property investors may be overlooking a new tax
relief that could save them thousands of pounds. Emma Dancer
explains how it works.
Investors buying properties consisting of two or more flats
could be spending far more than necessary if they don't take
advantage of a Stamp Duty Land Tax (SDLT) relief introduced in the
Finance Act 2011.
The change rectified the situation whereby if an investor bought
a property containing several flats from the same seller, the rate
of SDLT would be determined by the total amount payable. For
example, if there were five flats at £250,000 each then the
total purchase cost would be £1.25m.
SDLT would then be charged at 5%, because the total price
exceeded £1m. The buyer would therefore be paying
£12,500 tax on each flat.
The new system is far more generous. It allows the rate of SDLT
to be determined by the average cost of each unit.
In the example given above, the average cost of each flat is
£250,000, which falls within the 1% band. The tax on each one
is therefore reduced to only £2,500 - five times less than
under the old system.
There are conditions, of course. The relief only applies to
properties that consist of two or more dwellings, or land on which
a property consisting of two or more dwellings is being constructed
or adapted.
It may not apply to bedsits because HM Revenue & Customs
considers that for a unit to be classed as a single dwelling, it
must be self-contained. That view could be open to challenge,
however, and there is case law to suggest that the courts may be
prepared to consider a unit as a separate dwelling even if it is
not self-contained.
There are some other important provisos. The rate cannot fall
below 1%, even if the average price of the each dwelling is less
than the £125,000 threshold, and the relief doesn't apply to
properties that are subject to a lease or sublease granted for an
initial term of more than 21 years.
The relief may also be clawed back if certain changes are made
to a property within three years of purchase. For example, if the
relief is granted on a property consisting of several flats, it may
be taken back if the flats are later converted into a single
unit.
The relief may not apply in all cases but where it does, it
could provide substantial savings in SDLT.
For more information please contact Emma Dancer T. 0115 988 6722
or E. edancer@andersonssolicitors.co.uk.