The recent Autumn Budget has brought significant changes to Stamp Duty Land Tax (SDLT). Most notably, it heralded an increase in the surcharge on additional properties from 3% to 5%, creating an added cost which is likely to have a chilling effect on sales volumes across the country.
While this change has created challenges for property investors, there are still opportunities to grow a portfolio while minimising the impact of this rise through various reliefs and strategic approaches.
Stamp Duty Land Tax specialist Braman Thillainathan, director at Mirador Advisory, outlines some of the strategic ways property investors and developers can access these reliefs.
Understanding the impact of a rise in SDLT
The sudden increase in Stamp Duty Land Tax (SDLT) surcharge announced in Rachel Reeves’ recent budget has disrupted thousands of property transactions.
With immediate effect, stamp duty on additional dwellings has increased from 3% to 5%, adding a staggering £7,000 to the cost of an average additional property purchase.
With only 24 hours’ notice, some buyers and investors found their impending purchases were no longer financially viable.
However, this disruption has created unique opportunities for savvy property traders and investors who are able to leverage the available reliefs and exemptions.
Exemptions to the rise in stamp duty
Many buyers were sent into varying states of panic on the day of the Budget – but for some, there was an obvious escape from the increase in SDLT. It hasn’t been widely publicised, but if contracts were exchanged prior to 31 October 2024, the old surcharge of 3% will continue to apply.
The transitional provisions do not contain an end date. This means that as long as contracts were exchanged before 31 October 2024, and there is no variation to the contract and no change of buyer, the old SDLT rates will be applied.
In these circumstances, the 3% surcharge applies rather than 5%, even if there is a long delay before completion.
Key SDLT savings opportunities to be aware of
Of course, for those who had not exchanged prior to 31 October 2024, the increase – and the lack of warning – has had a substantial impact. There are, however, still opportunities for some to minimise the impact of SDLT on their property purchase.
While we estimate that there are more than 80 reliefs and savings that could be applied to the purchase of a property, we have identified five key areas which can yield big savings for purchasers.
The government has a surprisingly utilitarian approach to some reliefs: if the savings of a few can contribute to the successful transactions of many, reliefs are in place to facilitate this.
1. Chain break relief
This utilitarian approach is directly applied on one of the lesser-known opportunities that exists for property investors who are able to step in when a chain is at risk of collapse. If a property trader can take the place of a buyer who has dropped out (e.g. due to the recently increased SDLT rates), that property trader may be eligible for stamp duty relief. This not only presents a business opportunity but also serves a vital social function by preventing chain collapses that could affect multiple upstream and downstream transactions.
2. Probate relief
Property traders buying probate properties can potentially qualify for up to 100% relief on stamp duty. This applies when purchasing property from a deceased person’s estate, subject to specific criteria.
3. Mixed use reduction
Properties that combine residential and commercial elements, such as high street properties with commercial units downstairs and flats above or agricultural properties with residential buildings and farmland may qualify for an SDLT reduction through being classified as ‘mixed-use’.
4. Uninhabitable reduction
Residential properties which can validly be deemed to be uninhabitable may qualify for a reduction in SDLT. Qualifying factors include significant structural defects and high levels of dangerous contamination (e.g. asbestos).
5. Main residence replacement relief
When replacing a main residence, the impact of higher SDLT rates can be mitigated even where the taxpayer temporarily owns two properties during the transition. Importantly, this can apply even in circumstances where additional investment properties are owned in certain circumstances.
Strategic considerations for property investors
In order to make their investments as efficient as possible, long-term investors already use certain structures to maximise their return on investment.
Portfolio restructuring
Many investors are now considering transferring their property portfolios into corporate structures. This requires careful consideration of various factors and again specialist advice should always be sought:
– Current mortgage rates versus potential new rates
– Tax implications of corporate ownership
– Future legislative changes
– Medium to long-term financial planning
Professional tax advice is critical
While conveyancers handle SDLT calculations as part of the property purchase process, they may not be best placed to identify all available reliefs and opportunities. Specialised tax advice can:
– Identify relief opportunities others might miss
– Prevent costly calculation errors
– Optimize transaction structures
– Potentially save significant sums through proper planning
Navigating the SDLT surcharge
Despite increased SDLT rates, opportunities remain for property investors who take a strategic approach. Key to this is:
- Understanding available reliefs and exemptions
- Seeking specialist advice early in the transaction process
- Considering long-term structuring opportunities
- Staying informed about legislative changes
Re-imagining property portfolios
Those planning on investing may now focus on boosting the yields of current property portfolios in other ways to compensate for the additional cost of purchasing an additional home.
Creating additional rooms on an existing footprint is one such way.
Whether you’re an established property developer with a large portfolio or a first-time investor undertaking their first property renovation, refurbishment loans can be an extremely useful source of short-term finance to help you get more out of your properties.
Read our blog for more information on this type of finance.
The bottom line
While the increase in the SDLT surcharge presents challenges, it also emphasises the importance of proper tax planning and professional advice.
The difference between standard conveyancing calculations and optimised tax structuring can amount to tens or even hundreds of thousands of pounds in savings.
In this new landscape, working with specialised SDLT advisors isn’t just an option – it’s becoming a necessity for serious property investors.
Just as you would consult a finance broker to arrange necessary finance for your project, consulting a specialist SDLT advisor can help you navigate the complexities of property taxation and potentially unlock significant savings.
At the Commercial Branch, we work with a network of specialist advisors and service providers to ensure that every aspect of your property investment journey is as smooth as possible.