Stamp Duty Land Tax (“SDLT”) on the purchase of residential properties where the price is £1m or more will be charged at the new rate of 5% (previously 4%) with effect from 6 April 2011. This means on a purchase of a property for £1,000,000 the SDLT payable will be £50,000 on or after 6 April 2011 whereas now it would be £40,000.
Unlike previous SDLT increases, the new rate will apply to any transaction where the “Effective Date” is on or after 6 April 2011. The “Effective Date” means the date upon which the transaction is substantially performed. Generally speaking, the date of substantial performance is the completion date (as opposed to the date of the contract) when the purchaser pays the balance of the purchase price and takes possession of the property. At that stage the liability to pay SDLT arises. Technically, the date of the contract or any date before contractual completion could also trigger the payment of SDLT if, for example, a substantial part of the purchase price is paid on that date (in this scenario, a payment of 90% of the purchase price would be regarded as substantial) or the purchasers takes possession of the property. If the contract were substantially performed ahead of any contractual completion date then, in those circumstances, the Effective Date would be the date upon which such substantial performance took place.
In most cases, the Effective Date will continue to be the contractual completion date, when the purchaser sells their existing property and uses the proceeds of sale towards the purchase of the new property. Nevertheless, it is worth bearing in mind that if you are in a position where you can substantially perform the contract before 6 April 2011, even if you have not completed the remaining terms of the contract by that date, then this may provide you with the opportunity to pay SDLT at the current rate of 4%.
For anyone who is contemplating selling or buying a property where the price is £1m or more ahead of 6 April 2011, then please get in touch with the head of our property department: Anne-Marie Ellis, who will be pleased to discuss your requirements.