30/10/2024
Today’s Budget announcement with respect to SDLT came as a surprise.
Here are some initial thoughts:
1. The uplift in the HRAD surcharge from 3% to 5% is a significant increase, equating
to additional tax of £5350 based on the current average house price of £267,500
(Zoopla). This could be enough to tip the scales against many purchases by Buy to Let
investors.
2. In conjunction with the abolishment of Multiple Dwellings Relief, this actually
makes purchases of multiple units extremely uneconomical. For example, a purchase
of 4 flats costing a total of £800k was previously taxed at 3% when MDR applied – ie
£24000. From April 2025, the same purchase will be taxed at £70,000 – an increase of
192%.
3. In conjunction with the increase in SDLT rates, the ATED-related SDLT rate is also
being increased to 17%. However, at the highest price levels, the ATED rate of SDLT is
now so close to the main rate that there is hardly any difference. For example, a UK-
resident with additional property buys a house for £10 million. The basic rate of SDLT
from April 2025 comes to £1,613,750, whilst the higher ATED rate is £1.7 million (ie
17%). The difference is less than £87k (or 0.8% ) – hardly enough to change the way the
purchase is structured.
4. Worst off of all are non-resident purchasers of UK residential property, who face an
additional surcharge of 2% on top of the newly increased standard rates of SDLT. For
these purchasers, the top rate of SDLT is now 19% (on consideration over £1.5 million).
This is likely to increase to 20% if the government introduces its manifesto commitment
to increase the Non Residents Surcharge to 3%.
5. Tax planning point 1 – if less than 6 dwellings are being bought at one time, it will be
much cheaper to buy them in separate transactions if these can be unlinked for SDLT
purposes.
6. Tax planning point 2 – The value of the ‘replacement of main residence’ relief is now
even higher, since this enables you to buy a house whilst still owning other property, but
without paying the 5% surcharge.
7. Tax planning point 3 – For BTL and corporate investors, the best outcome is likely to
be when buying 6+ dwellings in one go, or when buying a mixed-use property, when the
Non Residential rates of SDLT apply. The difference between the residential and NR
rates at the higher levels over £1.5m is indeed striking (5% and 19% respectively).
8. Overall, this is likely to skew the playing field in favour of large institutional buyers
who can afford to buy blocks of flats, or can avoid the non residents surcharge by virtue
of being a listed company.
Is this what the government really wants?
Source:
Elliot Hirsch, Partner
Key2Key
07966 66 2610
