Does The SDLT Holiday Apply to Second Homes?

The Stamp Duty Holiday was due to end on 31 March 2021 but the Chancellor extended it for three months until 30 June 2021 so that the stamp duty nil rate band of £500,000 for residential property applies until then including for the purchase of second homes.

Between 1 July and 30 September 2021, the stamp duty holiday will apply a reduced nil rate band of £250,000 before the normal nil rate band of £125,000 is reapplied from 1 October 2021.

But watch this space because the SDLT holiday may yet be extended again given that this Chancellor finds it very difficult to take concessions away once people have got used to them.

Things like bounce-back loan repayments (repayment terms extended and with “holidays”), furlough payments (extended and terms softened) and tax return filing penalties (waived and extended) all come to mind. The effect of the SDLT holiday on second homes is the subject of this article.

What is Stamp Duty Land Tax?

Stamp Duty Land Tax is a tax on the acquisition of land in England and Northern Ireland. Scotland charges Land and Buildings Transaction Tax and Wales charges Land Transaction Tax, instead of SDLT. SDLT is charged on land transactions in England and Northern Ireland according to the price paid or in some cases the market value. A land transaction is any acquisition of a chargeable interest. This includes not only freeholds and leases but also interests, rights and powers over land other than exempt interests such as mortgages and licenses to use land. Different rates of stamp duty apply depending on whether the land and buildings are residential or non-residential.

What is the Stamp Duty Holiday?

The SDLT Holiday is a temporary increase in the Nil Rate Band of Stamp Duty Land Tax on residential property in England and Northern Ireland from £125,000 to £500,000 from 8 July 2020 to 30 June 2021. This holiday was given by the Stamp Duty Land Tax (Temporary Relief) Act 2020 and results in a stamp duty saving of up to £15,000. As far as second homes are concerned the stamp duty holiday also represents a stamp duty holiday on second homes because the ordinary rates of SDLT do not apply to the first £500,000.

First-time buyers and others pay the following ordinary rates on buying a residential property on or before 30 June 2021:

• Up to £500,000: 0%
• On the portion from £500,001 to £925,000: 5%
• On the portion from £925,001 to £1.5m: 10%
• Above £1.5m: 12%

How Does the Stamp Duty Holiday Affect Second Homes?

The stamp duty holiday affects second homes. This is because the stamp duty land tax holiday applies the £500,000 nil rate band to purchases of second homes so that the first £500,000 of the price of an additional dwelling is exempt from ordinary rates of stamp duty. However, the stamp duty holiday does not affect the 3% stamp duty surcharge for additional residential properties (or one or more residential properties acquired by a company).

The 3% additional rates apply on top of the holiday rates so that the stamp duty holiday on second homes does not affect the 3% stamp duty surcharge on the first £500,000 of the purchase price. This still results in savings because the first £500,000 remains exempt from the ordinary rates and so to that extent represents a stamp duty holiday on second homes.

When the 3% surcharge is payable, the following rates apply to second homes up to 30 June 2021:

• Up to £500,000: 3%
• On the portion from £500,001 to £925,000: 8%
• On the portion from £925,001 to £1.5 million: 13%
• Above £1.5 million: 15%

Between 1 July and 30 September 2021, the following rates apply to second homes:

• Up to £250,000: 3%
• On the portion from £250,001 to £925,000: 8%
• On the portion from £925,001 to £1.5 million: 13%
• Above £1.5 million: 15%

From 1 October 2021, the 3% additional rates on second homes apply on top of the standard rates of stamp duty. HMRC publish an SDLT calculator that can be used to compute the SDLT although it does not cover all eventualities and care should be taken for any out-of-the-ordinary transactions.
How Does the Stamp Duty Holiday Affect the Non-UK Resident Stamp Duty Surcharge?

From 1 April 2021, the non-UK resident stamp duty surcharge applies at a rate of 2% above the stamp duty residential rates (including the higher rates for additional dwellings and companies, the 15% rate and the first-time buyers’ rates) on residential property bought by non-residents. The 2% charge applies whether or not the stamp duty holiday applies.

This is in addition to the existing 3% higher rates surcharge which most foreigners already pay because they already own one or more residential properties overseas. So, SDLT for overseas buyers can be at a top rate of 17% of the purchase price. This will be either a flat rate of 17% in the case of the existing 15% higher rate on companies buying a dwelling or in other cases, on the top slice of the purchase price above £1.5m.

Can You Lock-In to the Stamp Duty Holiday?

Yes, you can. Any purchase affected by the holiday whose effective date occurs before 1 July 2021 qualifies for the stamp duty holiday rates. So, if you can arrange with your seller and conveyancer to make sure that the effective date of your purchase falls on or before 30 June 2021 then you get the holiday rates, even if you are buying a second home.

The “effective date” normally means the completion of your purchase by the conveyance of the property to the purchaser. However, an anti-avoidance rule means that the effective date will be earlier than completion when there is “substantial performance” of the purchase contract ahead of completion. This can occur if the purchaser or a connected person takes possession or pays a substantial amount of the purchase price.

Therefore, in suitable cases, it may be possible to rely on this anti-avoidance rule to lock into the stamp duty holiday rates by substantially performing the contract before 1 July 2021 and ahead of completion. This tactic is however not for the faint-hearted or DIY conveyancer and specialist professional advice must be taken if you are thinking of doing this. This technique may also be unattractive to mortgage lenders so the agreement of the seller’s and the buyer’s lenders would need to be obtained.

It may also be possible to lock into the SDLT holiday using the grant of options over the house but once again specialist advice must be obtained before attempting this.

How can Cannon Chambers Assist?

If you are purchasing a residential property in the UK at any price and wish to take the benefit of the stamp duty holiday, a member of Cannon Chambers can advise you on your options. Use the contact form below to get in touch on a no-obligation basis.

Alongside, tax avoidance schemes, GAAR & enabler penalties and financial crime, Cannon Chamber’s experienced SDLT barristers can also advise on:

• Stamp Duty on Second Homes
• Stamp Duty Refunds
• SDLT on Joint Properties
• SDLT on Divorce
• SDLT Avoidance Schemes
• Stamp Duty Penalties and Appeals
• SDLT on Commercial Properties