Stamp Duty on Annexes: How Does it Work?

Stamp Duty Land Tax (SDLT) can be a minefield at the best of times. It’s a confusing area of tax law that sees regular policy changes and affects a large number of people. If you’ve bought a house in England or Northern Ireland, you’ll have no doubt been affected.   In essence, SDLT is a levy applied to property purchases above a certain threshold. These thresholds are subject to change and exemptions, such as with first-time buyers. Read our guide on Stamp Duty Land Tax for more information on how the charges could affect you.    One of the many complicated aspects of SDLT concerns how the charges and exemptions are applied to properties that contain multiple dwellings. In this feature, we’ll explore how you may be affected.   

Stamp Duty on Granny Annexes

Annexes are a common feature of many homes and can often have multiple different uses. From housing elderly relatives to holiday lets, the number of registered annexes in the UK is steadily increasing. Almost 1 in 8 British homes is set to feature one in the coming years according to a 2020 survey.   One of the reasons for this increased popularity is its impact on SDLT. More specifically, how they help to reduce the amount paid.   Annexes, or granny flats, don’t count as additional dwellings with regards to the 3% SDLT surcharge on buy-to-let properties and second homes. This essentially means that you’re entitled to both have your cake and eat it.    An annexe will count towards any relief you may be entitled to but does not count towards the surcharge. This allows you to claim relief without the risk of being penalised elsewhere. Remember though, these are subject to specific conditions being met  

How Granny Annex Stamp Duty Works

There are many forms of SDLT relief that you may or may not qualify for. The most common of which is relief for first-time buyers.   The relief that relates to annexes is known as ‘multiple dwellings relief’ (MDR) and is calculated based on the individual price of a property. This tax amount is then multiplied by the number of dwellings present to give a final figure. It’s also important to note that there is a minimum payable amount; 1% of the total property price.  

What Counts as a ‘Dwelling’?

When we talk about multiple dwellings we are referring to separate buildings or self-contained areas of the same building that are suitable to living in. These come in various forms with the most common being annexes and flats.   For the purposes of SDLT, these dwellings must reside on the same piece of land in order to qualify.   You’ll also need to bear in mind that there are different rules should you own property in Wales or Scotland.  

How SDLT for Annexes Has changed 

Originally, a person buying a property that contained multiple dwellings was liable for an extra 3% SDLT charge. This was applied to the whole price and placed on top of the existing SDLT due. This was the case regardless of whether or not the new property was replacing an existing residence and created confusion around which properties counted and which did not.   Thankfully these rules were amended with a new test introduced. This test is applicable where a single transaction covers multiple dwellings. These new rules apply to the following circumstances:  
  • On making a reasonable allocation of the property’s price, at least two-thirds are paid for the main dwelling
  • The subsidiary dwelling is either part of the same building as the main dwelling or is on the same land as the main dwelling
  It’s important to remember also that there is no legal requirement as to what the additional dwellings are used for. Nor is there any specific requirements around planning conditions regarding occupancy of said dwellings. CapEx Associates are tax experts with years of experience. Our team can help with all manner of inquiries including how to deal with SDLT refunds and other related queries.

How to Account for R&D Tax Credits

R&D tax credits offer all UK businesses, regardless of sector, access to valuable financial support for innovation and help fuel growth to transform their business. It’s an incentive that works by offering a corporation tax relief or a tax refund to qualifying businesses.

R&D Tax Credits and Research and Development Expenditure Credit (RDEC)

The way in which to account for research and development tax credits differs depending on the size of your organisation and the nature of the project being carried out. This is due to the difference in benefits offered by the schemes designed to help SMEs (via the SME R&D Relief) and RDEC which was introduced to help large companies as well as those subcontracted to carry out R&D work for large companies (both large and SMEs).   It is likely that you could be eligible to claim under both schemes as long as the R&D credit criteria are met. For further information regarding the two, please refer our Guide to R&D Tax Credits. This can, unfortunately, be a complicated process which is why CapEx Associates provide a dedicated service to assist businesses in their R&D tax credit application and unlock further potential capital.

How to Account for R&D Relief

With a time limit of two years from the tax year to recoup R&D costs, a retrospective claim under both schemes, and a one-year reporting interval for company accounts, your award may likely be received before or after these documents are prepared. Therefore we have set out some guidelines to help you in producing your company accounts.   Main Differences to Note Between R&D Tax Credits and RDEC:  
  • R&D credits are recognised below the line in accounts, meaning that they are non-taxable and only affect the tax you pay. This is to be presented in your income statement or profit and loss account as either a corporation tax reduction or credit. 
  • Research and Development Expenditure Credit (RDEC) is accounted for as above the line, taxable income in comparison and can increase your profit before tax.

Accounting for SME R&D Tax Credits

Did you know that if your claim is…
  1. Received before finalising your accounts – you can simply include the amount you are awarded into your cooperation tax.
  2. Received after your accounts are finalised – complete a prior year adjustment for the year that the claim was made.

Double Entry Book Keeping for SME R&D Tax Credits

The instructions below lay out how you can successfully account for your SME R&D credits.   To account for your pre-R&D tax charge: Debtor – Corporation tax charge (income statement) Creditor – Corporation Tax (balance sheet)   To reduce your tax charge to include your R&D claim: Debtor – Corporation Tax (balance sheet) Creditor – Corporation tax charge (income statement)   If you have received a tax refund: Debtor – Bank (balance sheet) Creditor – Corporation Tax (balance sheet)   Awaiting a tax credit: Debtor – Corporation Tax (balance sheet) Creditor – Corporation tax charge (income statement)   Received credit from HMRC: Debtor – Bank (balance sheet)

How to Account for RDEC 

As RDEC is a taxable income, there are two ways in which it can be included in your company accounts. One is to regard your claim as other income, whilst the other is to deduct the sum from your R&D expenditure. This may be something that you might wish to consult on with your auditor or accountant.   Please note,  this example does not demonstrate how you can deduct your claim from your R&D costs and explains the latter.   Adding the RDEC: Debtor – Corporation Tax (balance sheet) Debtor – Corporation tax charge (income statement) Creditor – Other income (income statement)   You will need to add the pre-tax RDEC value above the line as other income and the tax payable within the tax line of your P+L document   However, if you receive a cash RDEC payment: Debtor – Bank (balance sheet) Creditor – Corporation Tax (balance sheet)   If you would like some support with your RDEC or R&D tax credit application, please get in touch via our online enquiry form or call us on 0121 272 0801.

How to Avoid Paying Stamp Duty Land Tax

When buying a property in the UK there are many different costs involved, one of which is Stamp Duty Land Tax. The rules around this tax have changed over the last few years and can often be difficult to understand. It is important to seek professional advice before any property purchases.

What is SDLT?

When purchasing any property in the UK costing over £125,000 you must pay a tax known as Stamp Duty Land Tax. Stamp Duty is paid to HMRC at varying rates depending on the price of the property that you are purchasing. However there are some exemptions, for example, if you are a first time buyer and you meet the criteria you do not have to pay the tax. There are also different boundaries for different house prices. A house in the £125,000 bracket is subject to SDLT at 2%. There are further thresholds at £250,000, £925,000 and £1.5 million. Any properties over this price are subject to tax at 5%, 10% and 12% respectively. This being said, SDLT can be a large expense when it comes to buying a property, so how can you avoid paying Stamp Duty Land Tax?

How to avoid paying stamp duty on a house purchase

The only way to completely avoid paying SDLT is to either buy a property that is under £125,000 or qualify for the first time buyers relief. Houses that don’t meet the £125,000 threshold aren’t subject to stamp duty. Searching for a property with a price lower than this value will mean that you will not have to pay SDLT. View all SDLT exemptions here. As of November 2017, first time buyers are exempt from paying SDLT. Being a first time buyer by definition is someone buying a property for the first time, they may not have previously lived in or owned their own house. If you fall into this category you will be exempt from paying stamp duty. The threshold at which you will start paying the tax is set at £300,000 for first time buyers.

Could you have overpaid stamp duty?

The rules around stamp duty tax have changed massively in the last few years. Overpaid stamp duty land tax is common for several reasons, in 2016 there were changes to the tax that many people may have been affected by but unaware of. There were also issues with the HMRC SDLT calculator meaning that many people could have overpaid tax without realising. If exemptions you may have been entitled to were not applied at the time you may be eligible for a refund. View the criteria on our SDLT refund page and get in touch to claim your refund if you believe you may be eligible.

Stamp Duty Land Tax relief

SDLT relief is essentially any program or incentive that reduces the amount of tax payable by an individual or business entity. As well as the first time buyers scheme, there are others such as SDLT multiple dwellings relief.

How to avoid paying stamp duty on a second home

When you purchase more than one dwelling where a transaction or a number of linked transactions include freehold or leasehold interests in more than one dwelling, you can claim Multiple Dwellings Relief. Another example of a tax relief scheme is the SDLT relief for charities. If land or a property is purchased for the use of charitable purposes. The HMRC will monitor the usage of the property and can withdraw the tax relief if the property stops being used as a charity or for charitable purposes within three years of purchase. View our page outlining all tax relief schemes available and find out if you are eligible. Claiming tax exemptions can be a long and time-consuming process. Due to various policy changes and constant rule amendment, it is highly recommended that you seek professional assistance. Contact us today and begin your SDLT exemption claim.

A Guide to R&D Tax Credits

Research and Development (R&D) tax credits reward businesses for innovation and fuelling growth, offering the opportunity to transform any business. How do they work and is your business eligible for them? Find out below in our in-depth R&D tax credits guide.

What are R&D Tax Credits?

Research and Development tax credits are designed to encourage UK companies to invest in innovation and increase spending on R&D activities throughout the business. It’s one of the UK government’s top incentives for encouraging homegrown investment in research and innovation. The incentive allows companies to recover a percentage of a company’s R&D spend as a cash repayment or a reduction in Corporation Tax, even if the project fails. The practice allows profitable and loss-making SMEs to get back up to 33% of the amount they’ve spent on R&D projects. Large companies can claim up to 10% of their R&D spend back.

Benefits of R&D Tax Credits

R&D tax credits offer valuable financial support for every business. It also helps businesses in every sector in the UK develop world leading products and services. The major benefits include:
  • Cash Injection – R&D tax relief provides essential funding for businesses that don’t need to be repaid.
  • Economic Growth – public R&D delivers £7 of net economic benefit on every £1 spent and unlocks £1.40 of private R&D investment.
  • Encourage Innovation – the R&D tax credits initiative encourages businesses to invest in R&D and innovation.
  • World Leaders – R&D tax credits place the UK as thought leaders at the forefront of innovation around the world.

Who is Eligible for R&D Tax Credits?

Any business in any industry could be eligible for R&D Tax Credits. To meet the requirements, your business must have undertaken qualifying research and development activities such as creating new products or services or changing an existing product or service. HMRC has incredibly detailed criteria which your project has to meet to be eligible for a tax reduction or cash repayment. An example that would qualify is a logistics platform calculating how to get a product to the right locations on time and pricing them correctly. If a company sets up a new WordPress site, they wouldn’t qualify for R&D tax credits. The scale and performance of your R&D project can also make a difference. If a website is designed to send quick messages and images to each other, it is unlikely to qualify. However, if the website is a hit and caters for millions of daily active users, it could qualify because of the technical challenge involved to keep that website going. Another example is if a company creates a search tool that can search a few hundred documents on a hard drive, it is unlikely to qualify. However, if the tool can provide instant results while searching thousands of documents over a shared network, it likely could.

The RDEC Scheme

Companies who don’t meet the financial criteria are eligible to claim money under the RDEC scheme. While these are less beneficial for companies, it gives you 9.7% of your project costs. This cash back is open to both profitable and loss making businesses. If you are an SME but a project you’re running is funded, it’s likely that the project and its costs will be needed to claim under the RDEC scheme. This doesn’t impact any other project you’re running, which can still claim under the helpful SME R&D tax credits scheme. It’s possible that you are likely claiming cash from both schemes, however the application process can become quite complicated. Working with a team such as CapEx Associates will ensure you keep on top of your documentation.

How to Claim R&D Tax Credits

If you’ve got an R&D project that you think would be eligible for R&D tax credits, CapEx Associates are here to help. If you own a small business in the West Midlands or a larger company with branches across the UK, we can support you in your application to claim R&D tax credits. We use a rigorous process to deliver R&D tax credit applications that maximise every element of your project and will stand up to HMRC evaluation. We want to find out more about your business and discuss how we might be able to support you in your tax credit claims. Get in touch with our expert team today to see if you’re eligible to make a R&D tax credit claim.

Investment Property Tax Benefits

Investing in property can be beneficial for your taxes. No matter the method, there are complex financial issues involved, one of those being tax. With the right knowledge, you can access the many investment property tax benefits available to buyers.

What is property investment?

There are two types of property investment – direct and indirect:
  • Direct property investment is where you buy all or part of the property yourself. This tends to increase in value as time goes by and you can either live in it or rent it out.
  • Indirect property investment is where you don’t directly own a property, but get a share of its profits. You have bought into a property fund or company and get dividends and/or capital growth when the fund makes a profit.

Tax benefits on buying and selling property (Direct investment)

Selling property: Capital Gains Tax Paying Capital Gains Tax (CGT) on the money you make from a property depends on whether this property is your home – the definition of main residence is the property you have lived in for the most time in the last three years. Selling your principal home in the UK generally means you won’t have to pay CGT, because you can claim Private Residence Relief on profits, subject to conditions being met. If you have let out parts or all of your home during ownership, you may be expected to pay CGT. If you sell a property you had as a holiday let, rental property or a property you bought for someone else, you cannot claim Private Residence Relief you need to pay CGT. Buying Property: Stamp Duty Land Tax If you’re buying a property in England or Northern Ireland, you may have to pay Stamp Duty Land Tax (SDLT) . In Wales, Land Transaction Tax applies. In Scotland, it is known as Land and Building Transaction Tax. In England and Northern Ireland, SDLT applies on property bought for more than £125,000 or on non-residential property that is more than £150,000. Tax rates are applied based on how much the property is worth in total and whether you own other properties and where you live. Put simply, the more expensive a property, the more tax you will have to pay. However, there are Stamp Duty Land Tax Exemptions which you could be entitled to.

Tax benefits on rental income (Direct investment property)

There are certain benefits you can claim in relation to the rental income you receive on properties. If you’re renting out a property to someone, there are ways your rental income could be considered for tax purposes:
  • Residential lettings
  • Furnished holiday lets
  • Rent a Room relief scheme
With residential letting and furnished holiday lets, investors can claim back expenses to reduce your tax bill. If you’re involved with the Rent a Room relief scheme, you can get a tax-free allowance.

Residential letting as a property investment

If you rent out some or all property for someone to live in, you must pay tax on the profits you make on the rental income. These are treated as a normal part of your income, so you will pay tax at the normal rate. This can be reduced by calculating your profits correctly.

Replacement domestic item relief

While the wear and tear allowance ended in 2016, investors can claim a deduction for the cost of replacing domestic items, including:
  • Movable furniture such as beds and wardrobes
  • Furnishings such as carpets and curtains
  • Household appliances
  • Kitchenware

Holiday letting as an investment property

If you own a property which you rent out as a furnished holiday let, you could get a capital allowance for furnishing the property by meeting these conditions:
  • It must be in the UK or EEA (European Economic Area)
  • It can’t be let for over 31 days at a time
  • It must be available for let for 210 days of the year as a furnished holiday accommodation and actually let for a minimum of 105 days.
You can claim Capital Allowances on fixtures, features and other costs involved with your furnished holiday let. This includes expenditure on fixtures, fitting and furniture.

The ‘Rent a Room’ relief scheme

If you rent rooms out in your house to lodgers, this can be treated as a residential property letting or you can claim Rent a Room relief. The room must be accessible from your house and not a separate flat, and the lodger must share common areas such as your kitchen. The Rent a Room Scheme gives you tax benefits if you meet these conditions:
  • You don’t pay tax on the first £7,500 of your rental income
  • You can’t deduct any expenses or wear and tear allowances
  • If you make a loss, you can’t deduct it from other taxable income.
If you jointly own the house, each person can claim £3,750 of tax relief. The combined claim equals up to £7,500 of tax relief under the scheme.

Tax benefits on indirect property investments

Instead of buying and managing property investments yourself, you can invest in property through a joint fund or by buying shares in property schemes or companies. Some of these include special tax benefits.

Real Estate Investment Trusts (REITs)

A Real Estate Investment Trust has two separate parts for tax purposes. The first is a ring-fenced letting business which is exempt from corporation tax. The second is non-ring-fenced activities like property management services, which aren’t. If the REIT is successful, you’ll receive some of the profits. It should be noted that:
  • Payments from the tax-exempt element are considered as UK property income for the investor and are paid net of basic rate tax – non-tax payers can get this back and if the REIT is held in an ISA, investors get the payments gross.
  • Payments from the non-exempt element are treated like dividends and are paid with a tax credit.

Property Authorised Investment Funds (PAIFs)

This is the most recent form of property investment fund, similar in structure to REITs. They also contain tax benefits, which are passed onto investors. If you need support working out what tax benefits you’re entitled to in your investment portfolio, the team at CapEx Tax are here to help. We can navigate the complexities of UK tax law to find where you can benefit from tax breaks for the investment you have put into your properties. Contact us today to get started.

Top 10 Tax Deductions for Small Businesses

Every business has the responsibility to make sure they are paying the right amount of tax to HMRC. However, each year, many business owners pay unnecessary tax because they fail to claim tax relief on legitimate deductible expenses. These circumstances are particularly common amongst small businesses, as they choose to manage their financial duties without seeking the help of a professional tax consultant . IIf you’re aiming to grow your company’s financial performance, here’s our small business tax deductions checklist; something every savvy owner should take advantage of.

What expenses are tax deductible?

According to HM Revenue & Customs, an item becomes a deductible business expense when incurred wholly, exclusively and necessarily for business purposes. Any items purchased for personal use are not eligible for small business tax deductions, but those acquired for a mix of purposes may be partially deductible. When an expense is claimed for tax return purposes, the item’s invoices/receipts must be retained for a set period of 6 years. Failure to do so may result in a fine of up to £3000 from HMRC. 1. Home office expenses If you’re a small business owner working from home, you may claim the costs of a home office from your turnover. Home office deductions are £4/week and there is no need to provide receipts, itemised bills or other documentation. 2. Accommodation Accommodation becomes a legitimate deductible expense when incurred solely and necessarily for business purposes. For example, if you’re going on a business trip, you may claim tax relief on the costs of a hotel room. The same applies to parking – fees incurred during business trips are deemed allowable expenses. 3. Transportation Car mileage Car mileage is a deductible expense when used for business. The cost is fixed at the standard mileage rate of £0.45/mile for the first 10,000 miles and £0.25 for each additional mile. For motorcycles, the cost is fixed at £0.24 per mile. This amount covers fuel, as well as wear and tear to your vehicle. Bicycle mileage You can claim bicycle business mileage at £0.20/mile, including mileage between work and home and/or work and client meetings. However, the cost of your bicycle and its maintenance are not eligible for small business tax deductions because it is deemed as personal property. Vehicle hire If you hire a vehicle for business use, you may deduct the costs from your tax bill. If you will also be using the vehicle during personal time, then you will only pay tax on the time ratio spent on the personal use of the vehicle. Flights You can claim back the tax on your flight ticket costs, provided that the trip was exclusively for business purposes. 4. Broadband, computer hardware and mobile phones Internet, mobile phones, hardware and computer consumables can all be added on your small business tax deductions checklist, so long as they are all used wholly and exclusively for business purposes. 5. R&D costs If your company is investing in the research and development of new products, services and technologies, you can claim back an average of 25% of the R&D cost of a project. Current R&D tax credit rates mean SMEs can claim up to 33p for every £1 on qualifying R&D activities with the average cashback to companies being around £50,000. Find out if you are eligible for R&D Tax Credits here. 6. Plant & Machinery costs Small business owners can deduct the cost of ‘plant and machinery’ equipment, including computing, manufacturing and office equipment before calculating the company’s Corporation Tax bill, provided that purchases are made in the company name, with relevant records to prove this. Businesses can claim three types of Plant & Machinery capital allowances . Find out more here . 7. Training courses, magazine subscriptions and business books You may claim back the tax on these items when they are relevant to your business’ trading activities. For example, a professional marketing journal is tax deductible for a marketing agency, however, a magazine like Top Gear isn’t. 8. Pension contributions You can get tax relief for contributions to your retirement plan which you either make personally, as a sole trader or partner, or which your company makes on your behalf. This will extend to pension contributions for any family members working in your business. 9. Accountant fees Your accountant’s fee fits the description of wholly, exclusively and necessarily incurred for business purposes. These expenses can therefore be deducted from revenue. The only exception is when these professional fees arise from a HMRC ‘enquiry’ and the enquiry is proven to have arisen from negligence or fraud. 10. Staff parties & events The cost of staff parties, including Christmas parties and other annual events are usually allowed as deductible expenses. However, the annual cost per attendee head has to be a maximum of £150.

Business Grants

If you’re looking to grow your business, the Regional Growth Fund Scheme was created to support small companies or businesses looking for more finance options. With funding of up to £1 million available, you can help your business develop beyond the start-up stage, and start making an impact on a local and regional level. There are also numerous government business grants available to small businesses, startups and new ventures. However, securing the funding can be tricky and challenging due to the specific criteria that each business grant will require.

Need Help?

CapEx Tax are experts in plugging businesses into available pots of money. Whether that’s through tax deductions, business grants, capital allowances or stamp duty land tax refunds , our team of chartered advisors, accountants and surveyors are always ready to source the funding/ relief you are entitled to. Get your claim started today!

Stamp Duty Land Tax: Residential Property Rates

Buying a new home entails a range of financial considerations, including legal fees, agent costs and, more often than not, Stamp Duty Land Tax . We take a look at the current Stamp Duty Land Tax rates on residential properties, as well as those taking effect in 2021.

What is Stamp Duty Land Tax?

All buyers must pay Stamp Duty Land Tax (SDLT) when purchasing a property or land exceeding a specific price threshold in England or Northern Ireland. SDLT is applicable on freehold properties, new or existing leaseholds, purchases made through shared ownership schemes and property transfers carried out in exchange for a sum of money. The amount payable typically depends on when you bought the property and how much it cost you.

SDLT Residential Rates

As of July 8th 2020 and until March 31st 2021, the Government has implemented new rates for stamp duty on residential properties as follows: Property/ Lease Premium/ Transfer Value – Stamp Duty Land Tax rate
  • Up to £500,0000 – 0
  • The next £425,000 (from £500,001 to £925,000) – 5%
  • The next £575,000 (from £925,001 to £1.5 million) -10%
  • The remaining amount (anything above £1.5M) -12%
Example: In September 2020, John pays £720,000 for a house. The Stamp Duty Land Tax he owes will be 0% on the first £500,000 and 5% on the remaining amount up to £720,000. This means the SDLT charge will be 5% from £220,000 which amounts to £11,000. Residential Stamp Duty Rates for properties bought after April 1st 2021 and before July 8th 2020: Property/ Lease Premium/ Transfer Value – Stamp Duty Land Tax rate
  • Up to £125,0000 – 0
  • The next £125,000 (from £125,001 to £250,000) – 2%
  • The next £675,000 (from £250,001 to £925,000) – 5%
  • The next £575,000 (from £925,001 to £1.5M) – 10%
  • The remaining amount (anything above £1.5M) – 12%
SDLT returns must be sent if you pay more than £40,000 for a residential property, regardless if there is a Stamp Duty Land Tax charge or not. However, there are instances when buyers may be eligible for an SDLT relief .

Stamp Duty Land Tax Relief for First Time Buyers

Buyers who purchase their first home before April 2021 or July 8th 2020 may claim a Stamp Duty Land Tax relief. This means they won’t need to pay SDLT on residential properties costing less than £300,000 and only a 5% SDLT charge on any amount ranging from £300,001 to £500,000. If the property is priced higher than £500,000, then you pay the same standard rates as those who have already bought a home before. If you’ve bought your first residential property through a shared ownership scheme on or after November 22nd 2017, you can claim SDLT relief if you intend to occupy the property as your main residence and the market value of the property is £500,000 or less.

SDLT on New Leaseholds and Property Transfers

For those buying a new residential leasehold property before April 2021 and July 8th 2020, the Stamp Duty Tax is payable on the lease premium using the same rates above. This is not applicable to existing or assigned leases where you need to pay the same SDLT rates as for freehold properties.

Stamp Duty Land Tax on Additional Properties

There are higher rates of stamp duty land tax for those who own more than one residential property. This means you’ll have to pay an extra 3% on top of the standard SDLT rates if buying a new home indicates you’ll own more than one. However, if you sell your previous main residence to replace it with a new residential property, then you won’t need to pay the 3% SDLT surcharge. Sometimes, buyers will take longer to sell their previous residence in which case they still need to pay the higher rates. Nonetheless, if they sell the property within 36 months, they become eligible for an SDLT refund. In exceptional circumstances, buyers may still reclaim the Stamp Duty Land Tax surcharge even if they take longer than 36 months to sell their old property. The latest exception that will allow you to still reclaim SDLT surcharge revolves around the impact of COVID-19 which may have prevented the sale.

Stamp Duty Exemptions

In other cases, buyers may become eligible for SDLT exemptions. This is applicable to those buying freehold properties costing less than £40,000, inherited properties, new or existing leases of less than 7 years and more. Find out more about Stamp Duty Land Tax Exemptions here .

Need Help?

If you think you may be owed an SDLT repayment, CapEX Associates can help support your Stamp Duty Land Tax reclaim. Contact our expert tax advisors and get your refund as soon as possible!

Tax Deductions When Buying a House

Buying a new house is a joyous moment, whether you’re buying your first home or a new rental property. It is also a big financial decision, which will be staying with you for a while, so you want to have all the knowledge and necessary information beforehand. When buying a new house in the UK, there will be certain tax deductions you will need to be aware of. If you have bought a house in the past you might also be eligible to claim back certain tax you might have overpaid. CapEx Associates specialises in tax-related services, and we have put this guide to help you stay informed on the latest property-related tax deductions.

What Tax You Might be Expected to Pay

Depending on whether you’re buying or selling a home, tax rules will differ. They will sometimes be slightly different if you live in Scotland, England, Wales or Northern Ireland. You can expect to pay::
  • Stamp Duty Land Tax when you buy a home in England
  • Land Transaction Tax when you buy a home in Wales
  • Capital Gains Tax when you sell a home

Stamp Duty Land Tax When Buying a New House

When you’re buying a new property in England or Northern Ireland you might have to pay a tax known as Stamp Duty Land Tax . For Scotland, this is Land and Buildings Transaction Tax and in Wales it’ Land Transaction Tax. In England and Northern Ireland SDLT is applied when you’re purchasing a property over £125,000 or a non-residential property of over £150,000. Depending on how much the property is worth, whether it’s your first property and its location there are different rates of tax to be applied. In general, the more expensive the property is, the higher rate of tax will apply. An additional 3% surcharge will apply if you’re buying an additional second home or a buy-to-let property.

July 2020 SDLT Holiday

In July 2020 Chancellor Rishi Sunak announced that the Government was scrapping SDLT on house purchases up to £500,000 until 31st March 2021 in a bit to breathe some much-needed fresh air in the real estate market, suffering from the COVID-19 pandemic. The new changes to SDLT were welcome by property investors and estate agents alike, as well as those looking to invest in property over £500,000. As stamp duty land tax is tiered, the removal of it for properties under £500,000 also meant a decrease for more expensive properties.

Capital Gains Tax When Selling a Property

TIf you’re on the other side of the property purchase deal, you might need to consider the Capital Gains Tax. Whether or not you’ll be liable to pay CGT on the money you make from a property sale depends on whether the property was classified as your home – or the main property you have occupied for the last 3 years. Selling your main residence in the UK will relieve you of paying CGT, because you can claim Private Residence Relief on any profit, subject to meeting certain conditions. However, if you have let out some or all of your main residence during the ownership period, you might need to pay Capital Gains Tax. If you’re selling any other property, such as a holiday home or a rental property, you won’t be able to claim Private Residence Relief and you might need to pay CGT. As a basic-rate taxpayer in the UK, if you sell property in the UK, you’ll have to pay an 18% tax on any profit. If you’re a higher, or additional-rate taxpayer you’ll be paying 28% above an annual CGT tax-free allowance of £12,000 for the 2019/2020 tax year. Couples can also combine their allowances, meaning that they can gain £24,000 before having to pay CGT.

Pay the Right Tax on Your New House

If you think you’ve overpaid SDLT on residential properties or investment properties, CapEx Associates can support your claim. Get in touch with our tax advisors today to get your claim started today.

Stamp Duty Changes Explained

In his recent House of Commons summer address, Chancellor Rishi Sunak announced that the Government was scrapping Stamp Duty Land Tax (SDLT) on house purchases up to the value of £500,000 until 31st March 2021. The move has delighted the property sector because it will support the recovery of the housing market as home buyers will save thousands of pounds in tax. These changes take immediate effect in England and Northern Ireland, however Wales and Scotland have announced their own measures, which we’ll also go into detail about. Here, we scrutinise how the new rules will work, highlight all benefits for you and offer advice if you’re considering buying a new property.

Stamp Duty Changes in England and Northern Ireland

The new rules on stamp duty tax mean that the threshold has been lifted in England and Northern Ireland on any property worth up to £500,000. Previously, stamp duty tax applied from £125,000 or £300,000 if you were a first-time buyer. This means that people buying a new home or main residence, between now and March 2021 can make huge savings. The change also benefits those looking to buy properties that cost more than £500,000. Because stamp duty is tiered, they won’t pay anything on the first £500,000 and will pay regular rates on anything above that threshold. The UK government estimates that 9 out of 10 people buying a home won’t have to pay any stamp duty at all.

New Stamp Duty Rates until 31st March 2021

The new rates on stamp duty land tax are:
  • £0-500,000 = 0%
  • £500,001-£925,000 = 5%
  • £925,001-£1.5m = 10%
  • £1.5m+ = 12%

How much money will you save?

Under these temporary measures, the more expensive home you’re buying, the more money you are going to save. The government expects the average stamp duty bill to fall by £4,500, while the savings on properties priced at £500,000 will be £15,000. Here are some examples of the savings buyers will make on higher rates: If you buy the property for £600,000 there is 0% tax on the first £500,000 and 5% on the next £100,000. The total SDLT bill is £5,000 (previously it would have been £20,000). Property price: £750,000; 0% tax on the first £500,000; 5% on the next £250,000; Total bill equals £12,500 (previous bill = £27,500). Property price: £1m; 0% tax on the first £500,000; 5% on the next £425,000; 10% on the last £75,000; A total bill of £28,750 (previous bill = £43,750).

Stamp Duty Cut & Buy-to-let

Homeowners looking to buy an investment property or a second home will still pay the 3% stamp duty surcharge, but this will be added to the latest temporary rates. This means you can still make huge savings on additional property purchases. The current rates are:
  • £0-500,000 = 3%
  • £500,001-925,000 = 8%
  • £925,001-1.5m = 13%
  • £1.5m+ = 15%
Previously, if you bought a property to let for £250,000, you would have had to pay 3% on the first £125,000 and 5% on the second £125,000, meaning your stamp duty bill was £10,000. Under the new rules, you’ll only pay 3% on the whole £250,000 purchase price, giving you a bill of £7,500 and a saving of £2,500.

Duty Changes in Scotland

The Scottish Government has changed its Land and Building Transaction Tax (LBTT) rates that come into force from the 15th July. The previous threshold of £145,000 has been replaced with the new level of £250,000 until 31st March 2021. The Scottish government has said that this will mean that buying a property of £250,000 will see a saving of £2,100 in LBTT – also 80% of properties in Scotland will be exempt from LBTT completely. Any person buying investment properties will also benefit from the new rules, but will have to pay the ‘additional dwelling supplement’ of 4%.

Stamp Duty Changes in Wales

The Welsh Government has announced it will change its Land Transaction Tax (LTT) from 27th July until 31st March 2021. LTT will only apply on purchases over £250,000, rather than the current level of £180,000. This will mean a saving of £2,450 on property purchases to the value of £250,000 – the change also means 80% of transactions will be exempt from stamp duty. The reduction will not be applied to purchases of investment properties, buy-to-let and second homes. The government have also stated that these changes will ensure £30 million will go towards funding energy-efficient social housing across Wales.

Pay the right SDLT

With the new SDLT rates in place, it’s important that you pay the right rate on property purchases. As experts in Stamp Duty Land Tax Refunds a, exemptions and tax reliefs, CapEx can support you to ensure you pay the right rate based on the value of the property you have purchased. If you think you’ve overpaid SDLT on residential properties or investment properties, we can support your claim. Get in touch with our tax advisors today to get your claim started today.

What is the Definition of Main Residence for Stamp Duty Land Tax

Stamp duty land tax is not charged when buying a first home. However, if you’re buying another home that isn’t your permanent residence, you will be liable to pay extra SDLT. The 3% surcharge is added when purchasing an additional dwelling but exemptions apply if the property being purchased is your main residence. The confusion arises from understanding whether the 3% SDLT surcharge can be avoided on the basis that you are ‘replacing an only or main residence’. The rules surrounding this legislation can be tricky to understand and the various conditions you will need to meet vary depending on your personal circumstances.

What is the Definition of “Main Residence”?

A “main residence” is considered to be the property where an individual resides for the largest amount of time each year. If they only live at one property, then this will count as their main residence. However, if the buyer occupies more than one, then the situation becomes more complicated. Personal circumstances have to be considered as it is not always as clear cut as the property in which someone spends most of their time. The official Government guidance on “main residence” for SDLT purposes outlines a set of questions to consider
  • If the buyer is married or in a civil partnership, where does the family spend the majority of its family time?
  • If the individual has children, where do they go to school?
  • Which is the residence that the individual is registered to vote on?
  • Where is the individual’s working location, as well as how is the residence furnished?
  • Which address is used for official correspondence and where is the individual registered for GP and dentist services?
  • If the buyer owns a car, at which address is the vehicle registered and insured?
  • Which is the main address for council tax purposes?
The previous main residence will be considered as such if it’s the buyer’s main residence at the point of sale, or it was at some time during a period of 3 years before the purchase.

Replacement of Only or Main Residence Rules

An individual can avoid the 3% surcharge on additional dwellings on the basis that they are ‘replacing an only or main residence’ with the new property they are purchasing. This basically means that the rates on replacing main residence stamp duty can be mitigated, should you meet the following criteria. If you meet the rules, you could potentially save yourself thousands of pounds on tax. It is important that: 1. The buyer previously owned a home and it was their main residence (they lived there). 2. The previous home has been disposed of at the time of purchase of the new one. 3. The new property is bought with the intent to be the buyer’s main residence (they will be living there).

Purchasing Main Residence Before Selling the Old One

If the buyer still owns their previous main residence at the time of purchase of the new property intended for the main residence, the buyer will have two properties at the time of the purchase and will, therefore, be liable for the SDLT surcharge. However, If the buyer then sells the previous main residence within 3 years, the stamp duty land tax surcharge can be reclaimed.

Married Couples Purchasing Property

For the purposes of the stamp duty land tax surcharge, couples who are married or in a civil partnership are treated as one person. This means that anything that is owned by one of the partners is considered to be jointly owned. Therefore, purchase or sale on one of their names is still relevant and could have an effect on whether the SDLT surcharge is due when purchasing a new dwelling. In different circumstances, this will mean that sometimes married couples will have to pay the 3% surcharge when unmarried couples would not. If you are considering an investment in additional property, or you have bought a property which will serve as your only or main residence and think SDLT has been overcharged, CapEx Associates can help with navigating the different legislation and claiming back overpaid tax. Contact us for more information on how we can help.