SDLT tax receipts

John Shallcross takes a look at the latest statistics on tax receipts from stamp duty land tax and considers what they tell us about first time buyers’ relief and of the higher rates of SDLT for additional properties.

The quarterly statistics on receipts from Stamp Duty Land Tax (SDLT) released on 1 November 2019 for Q3 2019 are generally unexciting.  Whilst Q3 (July to September 2019) shows significantly higher transactions and receipts than Q2 (April to June 2019), this increase is consistent with usual seasonal variations. Overall, transactions and receipts are broadly the same in Q3 2018 and Q3 2019.

First time buyers’ relief

There were 61,200 transactions in the three month period which claimed first time buyers’ relief, bringing the total number to 401,900 since the introduction of the relief in November 2017.  It is estimated that a total of £955M in tax has been relieved in this way.

First time buyers’ relief (in contrast to the 3% surcharge) has a relatively simple operation and is well understood.  There are some complexities, but they do not arise very often in practice.  There is a piece here about the complicated areas.

Latest figures for higher rates of SDLT (the 3% surcharge)

The latest statistics show that about one third of all liable residential transactions since Q1 2018 have been liable to the higher rates.  For Q3 2019, 60% of the higher rates transactions have been for properties bought for under £250,000.  There is a modest 2% increase in receipts for transactions liable to the higher rates in comparison to Q3 2018.

45% (£1,057 million) of residential receipts for SDLT were from higher rates transactions in 2019 Q3, of which £505 million is estimated to be from the additional 3% rate.

It was not meant to be like this!

The policy intentions behind the 3% surcharge, as set out in the Consultation Paper of 25 November 2015 preceding the introduction of the charge, were about “supporting home ownership”.

It was envisaged that the higher tax would discourage those buying property for investment and result in more purchases being by owner occupiers.  The paper predicted: “The vast majority of transactions, such as first time buyers purchasing their first property or home owners moving from one residence to another to another will be unaffected.”

With 45% of residential receipts being from transactions liable to the higher rates, it is clear that the policy is not achieving its original goal.  It is unlikely to be abandoned though as it raises such significant revenue.

Refunds of 3% surcharge

The policy design of the surcharge is far more complicated than it needed to be.  Arguably, it is a failing of the rules that home buyers are required to pay the extra 3% when they buy a new home before selling their old one.  Although refunds are usually available where the old home is sold within three years, there can be difficulties in financing this when buying a home.

The latest statistics say: “In Q3 2019, 5,700 additional dwellings refunds totalling £77 million were paid.”  That is a lot of people who had to finance the extra 3% until they could sell their old home!

Higher rates complications

In contrast to first time buyers’ relief, the 3% surcharge has caused many problems and is greatly misunderstood.   The rules are complicated and often HMRC do not understand the rules themselves, as can be seen from this Case Study about the rules for “replacing a main residence”.  The HMRC guidance that caused the problem remains defective, still incorrectly referring to a sale of “the last main home they owned”.  This regularly causes confusion and people to be incorrectly advised that the extra 3% is due.

Frequent misunderstandings about the replacement exception

Homebuyers are often caught out when buying a home to live in when they own another property, perhaps one they have never lived in.  The consultation paper had (as mentioned above) indicated that the 3% extra would not apply to home owners “moving from one property to another”.  The calculator HMRC provides just asks “Is the property being purchased replacing your main residence?” without giving any indication that to be able to answer “Yes” there must be a disposal of a previous home.  Buyers often assume they are not liable to the extra 3% when moving from one home to another; but the higher rates are usually due if they own another property and do not have a sale or disposal of an old home to rely on.

HMRC fail similarly to explain what is needed to qualify for a refund in the form they provide for applying for a refund.  They wholly omit to explain the requirement that the person applying for a refund of the 3% extra paid on a new home must have lived in the old home as their only or main residence at some time in the three years leading up to the purchase of the new home.  No wonder people get it wrong so often!

This blog is intended for general information purposes only and does not constitute legal or professional advice. Advice should be sought before proceeding with any transaction.

For professional advice on SDLT, please get in touch.