For any lawyer purchasing residential property on behalf a buyer, it is essential to understand the particularly complicated and unusual Stamp Duty Land Tax (SDLT) provisions, and the various exemptions.
Did You Know About The “Property Traders” Exemption?
One interesting exemption is for a specific type of property traders (a company or partnership that carries out the business of buying and selling properties) when buying property from a deceased estate; no SDLT is due.
This relief was introduced as an amendment to the Finance Act 2003 (by the insertion of a new Schedule 6A, with sub paragraph (3)) to increase fluidity in the housing market.
The Exemption In Practice
A property trader’s purchase from the Executors or Personal Representatives of a deceased individual will be exempt from SDLT if of the following conditions are met:-
(a) that the acquisition is made in the course of a business that consists of, or includes, acquiring dwellings from personal representatives of deceased individuals
(b) that the deceased individual occupied the dwelling as their only or main residence at some time in the period of two years ending with the date of their death,
(c) that the property trader does not intend:
(i) to spend more than the Permitted Amount on refurbishment of the dwelling, or
(ii)t to grant a lease or licence of the dwelling, or
(iii) to permit any of its directors or employees (or any person connected with any of its principals or employees) to occupy the dwelling, and
(d)that the area of land acquired does not exceed the Permitted Area.
Condition (a) will depend on the type of buyer, and how it is set up. The main course of business should be buying properties in probate with a view of refurbishing them and selling them on.
In respect of condition (b), whether the deceased occupied the property as their main residence will be a question of fact for each purchase and it will be for the buyer to satisfy themselves that the deceased did use it as their main residence in that time.
For condition (c) the Permitted Amount allowed for refurbishments are £10,000 or 5% of the price paid for the acquisition, whichever is the greater, but up to a maximum of £20,000. The refurbishment of a property includes carrying out works that enhance or are intended to enhance its value but does not include cleaning or work to ensure it meets minimum safety standards.
And for condition (d), the Permitted Area of the property (inclusive of the site of the dwelling) will be half a hectare, or a larger area necessary for the reasonable enjoyment of the dwelling considering its size and character. Where the property purchased is more than the permitted area, so long as the other conditions above are fulfilled, partial relief may be claimed.
How To Claim The Exemption
When submitting the SDLT Return, a buyer (via their solicitor) should claim the relief or partial relief at question 9 of the SDLT1. This type of relief falls under code 28 ‘Other’.
Finally, the buyer should be aware that this SDLT relief may be withdrawn and clawed back by HMRC if they:-
- spend more than the Permitted Amount on refurbishment of the dwelling, or
- grants a lease or licence of the dwelling, or
- permits any of its principals or employees (or any person connected with any of its principals or employees) to occupy the dwelling.
Please note that this information is correct at the time of publication.
For more information on this article or to discuss your property needs generally, please contact Alex Le Messurier by email ALeMessurier@jpclaw.co.uk or telephone 020 7581 7511 or contact him on LinkedIn.