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While much of the focus on tax in recent months has been on national insurance and capital gains tax, those looking to buy residential property should especially be wary of the new changes to SDLT due to come into force in England and Northern Ireland from 1 April 2025. (The examples below assume the individual is UK resident for SDLT and the 5% surcharge for acquisitions of additional residential property does not apply.)
First-time buyer relief:
First-time buyer’s relief has been especially helpful for those wishing to get on the property ladder since its introduction in 2017. However, the scope of this relief is due to become narrower. Currently, there is no SDLT due at all on a dwelling costing up to £425,000 where the relief is validly claimed. Where the price falls between £425,000 and £625,000, the rate of SDLT is 10% (so the SDLT payable for a £625,000 purchase by a qualifying first-time buyer is £10,000).
However, from 1 April 2025:
- The threshold at which the relief is capped is being lowered from £625,000 to £500,000 (anything above that will mean the relief cannot apply); and
- The lower threshold (under which the first-time buyer rate is 0%) will be reduced from £425,000 to £300,000.
So it is imperative for the purchase to have completed before 1 April if this relief is to remain available and to be maximised. For example, a first-time buyer paying £500,000 for a property on 30 March 2025 will pay £3,750 in SDLT, while if they wait until just the next day to complete, the SDLT will jump up to £10,000. In the same way, if a first-time buyer buys a £625,000 dwelling on 1 April, the SDLT is £21,250 compared with just £10,000 if they completed the day before (as the relief on a purchase of that price will not be available from 1 April).
Regular SDLT rates:
Where first-time buyer relief doesn’t apply, the various bands which dictate the rates of SDLT on a transaction are also changing. Currently, the first £250,000 of the price of a dwelling is charged at 0% (nil rate band), with the next slice of the price (between £250,001 and £925,000) charged at 5%. From 1 April however, the nil rate band is being halved. Only the first £125,000 of the price is chargeable at 0%. From £125,001 to £250,000 the rate is 2% and from £250,001 to £925,000 the rate is 5%.
The effect of this is that a purchase of a dwelling by an individual who is not a first-time buyer and which costs £500,000 will cost £12,500 in SDLT on or before 30 March 2025 but will cost £15,000 on or after 1 April, an increase of £2,500.
Finally, it is worth pointing out what the trigger point for the SDLT liability is in these situations. SDLT (and the rates applying to it) is determined by reference to the ‘effective date’ of a transaction. Nine times out of ten, this is the date of completion of the sale contract – usually this is clear in residential purchase cases. The exception to this is where a contract is ‘substantially performed’ – this means broadly that either the buyer has taken early possession of the property or they have paid at least 90% of the purchase price early. Where that happens, the date of substantial performance is the effective date (and therefore if substantial performance occurs before 1 April 2025, the applicable rates and bands are those in place currently).
Commercially, substantial performance of a contract may not be simple to negotiate and effect, so buyers wishing to avoid having to pay significantly more SDLT from 1 April 2025 should examine their options and plan their transactions (including all legal and professional steps) early.
This article is for general information only and does not, and is not intended to, amount to legal advice and should not be relied upon as such. If you have any queries on the above or property taxes generally, please contact Anthony Reeves.
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