Estate agents play a key role in identifying tax savings that can benefit all parties. If a purchaser can benefit from a reduced Stamp Duty Land Tax (SDLT) liability, they will have additional funds for a higher offer. A higher offer means a happier seller and increased commission.
Residential property purchases may be eligible for certain reliefs from SDLT. The key is to identify any potential reliefs at the earliest stage as key evidence for tax advisers and should HMRC decide to challenge the claim is the description included within sales particulars.
One of the most fruitful reliefs is Multiple Dwellings Relief (MDR). This relief will usually see stamp duty land tax charged not on the total sale price of a home but on the sale price divided by the number of properties acquired regardless of their size or value, and that can represent a significant saving.
The definition of a ‘dwelling’ is not included within legislation, but it is widely accepted as a building or part of a building which accommodates all of a person's basic domestic living needs.
By requiring the building or part of a building be suitable for use as a ‘single’ dwelling, the statutory language emphasises suitability for self-sufficient and stand-alone use as a home.
The practice this will mean being able to answer the following questions:
• Does it have the necessary facilities? For example, does it have an area which can be used as bedroom, washing facilities and an area to prepare food? A garden office that includes, for example, a kitchenette and bathroom is likely to qualify.
• Is it independent from the main house? Can it be accessed via an entrance that is separate to the main house? Can any internal access be prevented by shutting or locking doors?
I have seen granny annexes, converted garages, pool houses, converted party barns and garden offices all qualify for the MDR relief.
One of the main issues that we see is where a property has an additional dwelling but cannot be accessed independently. For example, a granny annex which can only be accessed by walking through the ground floor of the main house rather than a side entrance.
Sellers can significantly increase the value of their property by making small enhancements to increase the likelihood of the relief applying. If any such enhancements are made, these should be reflected in the sales particulars as this is third party documentation of the property at purchase.
MDR can be combined with the current SDLT ‘holiday’ which is in place until June 30 2021. Savings can be significant.
Take the following example. A large-detached family home set in 0.63 acre garden is put on the market for £1.5 million. The purchase includes the main house and a one-bedroom self-contained annex.
The stamp duty liability in the absence of any reliefs and including the application of the SDLT holiday is £78,750.
The annex, however, qualifies for MDR and it is subsidiary to the main house. SDLT is chargeable on two dwellings each purchased for £750,000. The liability after the application of the relief and including the holiday rates is £25,000.
The SDLT saving totals £53,750.
Estate agents that understand or seek specialist tax advice can explain MDR reliefs to sellers, enabling them to increase the sale value of their property to reflect the SDLT savings, and to buyers to ensure they pay only stamp duty required. All parties, the seller, buyer and agent, benefit.
Tax is a specialist area and advice should always be obtained.
*Natasha Heron is a Tax Manager specialising in property taxes at accountants Hillier Hopkins