What is the Stamp Duty Land Tax holiday?
Stamp Duty Land Tax (SDLT) is the tax payable on the purchase of property or land over a certain price in England and Northern Ireland. On 8th July 2020 the SDLT ‘holiday’ took effect, with the aim of bolstering an uncertain housing market during the Coronavirus pandemic.
Prior to the holiday, SDLT was payable on all residential property purchases over £125,000 with, for example, purchases of £500,000 incurring SDLT of £15,000. During the SDLT holiday, only prices over £500,000 have attracted SDLT, with purchases below that threshold paying no tax at all. Even purchases of additional dwellings are only taxed at a rate of 3% on the first £500,000, with tapered charges for any amount above that level.
How has it affected the property market?
The SDLT holiday appears to have been successful, contributing to a large increase in the volume of residential sales since it was introduced. However, although an extension has been suggested, the ‘holiday’ will end on 31st March 2021, which means the SDLT threshold will revert to £125,000 for residential properties.
What effect will the end of the SDLT holiday have?
Although SDLT need not be paid until 14 days after completion, if a purchase is not completed before 31st March 2021 the standard rate of SDLT will apply and it makes no difference that the purchase process commenced (or even that exchange occurred) during the SDLT holiday. This will inevitably result in extreme pressure to complete residential purchases by this date, particularly as 31st March coincides with Easter weekend and will also see the end of the current Help to Buy Scheme.
Conveyancers, lenders, estate agents, surveyors and other property professionals have all been extremely busy since the first lockdown ended in the Spring and there is a real risk that they will be unable to cope with the inevitable demand to deal with even more transactions before this deadline. The benchmark timescale for purchase transactions has already substantially increased and this increased demand is likely to result in further delay, making it even less likely that the deadline can be achieved.
What considerations should prospective buyers take into account?
In the circumstances it is possible that, even now, buyers who find a property to purchase will be given no guarantee that their purchase can be completed before the deadline. They should therefore consider whether they could afford to pay the higher amount of SDLT (if the deadline is missed) before commencing their purchase and incurring costs.
Buyers who are in a chain should be particularly cautious since, even if they are ready to complete their purchase by 31st March (or to pay SDLT if they can’t), it only takes one person in the chain who isn’t ready (or can’t afford to proceed unless the concession is obtained) for the entire chain of transactions to fall apart.
If a flat is being purchased there are more issues to address. Those who need to produce leasehold information packs are already slow in doing so and the burden of additional transactions will only add to these delays, whilst the issue of selling flats within buildings which require a review of their external wall construction due to possible fire risks is becoming well recognised. If a building requires (but does not already have) an EWS1 certificate, the chances of completing the sale of a flat in that building before the deadline are extremely remote.
What can be done now to mitigate any issues?
Where it becomes clear that a sale will not complete in time, obviously the parties may agree a reduced purchase price to offset the cost of the SDLT payable after the deadline. But astute professional advisors may also find other means to meet the deadline which might not be immediately obvious.
For example, if the buyer can meet the deadline but a seller is unable to move out of a property in time, it may be possible for the parties to complete with the seller taking a temporary lease back. However, any such solution will be entirely dependent upon the circumstances of the particular transaction and there are no simple, “one size fits all” solutions.
What is clear is that it will not always be possible to find a means of guaranteeing completion by 31st March 2021. The best thing that buyers can do is to get a purchase agreed as soon as possible, make the various professionals involved aware of the proposed deadline and be aware that it is possible that the deadline could be missed. They should also be prepared to pay higher charges than usual since it is likely that lawyers and surveyors will try to manage their caseloads by charging more than they usually would for transactions needing to complete before 31 March 2021.