One of the more headline grabbing announcements during the recent Budget was the Chancellor’s decision to raise the Stamp Duty Land Tax (SDLT) threshold for first-time buyers to £250,000. To qualify, the property must be wholly residential and the purchase price must be no greater than £250,000. The purchaser must not, either alone or with others, have previously acquired a major interest in land which includes residential property anywhere in the world (this includes inheriting a property). Additionally, the purchaser must intend to occupy the property as his or her main residence, therefore buy-to-let investors will not benefit. If two or more people are buying the dwelling together they all must meet the criteria to avail of the relief. The higher threshold will affect transactions with an “effective date” (usually the date of completion) between 25 March 2010 and 24 March 2012 inclusive. After this date, the threshold will revert to £125,000. Your solicitor will apply for the relief on your behalf.

 

For purchasers who are not first-time buyers, the thresholds remain the same as before:

 

 

 

So, a first-time buyer completing a purchase for £250,000 pays no SDLT under the new regime. Everyone else will pay £2,500 (SDLT is charged on the entire purchase price, not just that amount above the relevant threshold). For non first-time buyers who try to claim the relief when they are not entitled to it, HMRC will charge a penalty of up to £200 as well as interest on the SDLT amount due.

 

 

The second change to SDLT announced in the Budget relates to purchases of residential property of over £1m. At present, these purchases are taxed at 4%. However, for purchases with an “effective date” falling on or after 6 April 2011 a new rate of 5% will apply. This announcement has caused concern amongst purchasers of “off-plan” dwellings where the price is more than £1m. In many cases the purchaser may have already entered into a contract for the purchase of such a dwelling but completion will not take place until after 6 April 2011. In other words, the contract was signed when SDLT would be charged at 4% but by the time the tax is payable it will be levied at 5%. For a property costing £1.5m this represents an increase of £15,000 (£75,000 instead of £60,000). Previously, HMRC excluded contracts already entered into from such an increase. It remains to be seen whether a similar carve-out will be introduced again. Unlike the relief for first-time buyers, the new 5% rate is a permanent measure (subject to further amendment).