Stamp Duty Land Tax (SDLT): A Guide for Auction Buyers and Probate Sellers with Tax Saving Strategies

When buying or selling property, Stamp Duty Land Tax (SDLT) is an important consideration, particularly for those engaging in property auctions or dealing with estates under probate. SDLT can significantly impact your budget or proceeds, but careful tax planning can help mitigate costs. In this blog, we'll explore SDLT implications for property buyers at auctions, sellers dealing with probate sales, and actionable strategies to reduce the SDLT burden.

What is Stamp Duty Land Tax (SDLT)?

SDLT is a tax you pay when you purchase property or land in England and Northern Ireland. The amount payable depends on the property value, whether you are a first-time buyer, or if the purchase involves additional properties.

• When is SDLT Paid? SDLT is payable within 14 days of completing a property transaction.
• Who Pays SDLT? The buyer is responsible for paying SDLT.

The SDLT rate is based on property value, and additional surcharges apply for second homes or investment properties. If you own another residential property, you usually pay 5% on top of these rates.

Residential Property Price Standard SDLT Rate
Up to £250,000                    0%
£250,001 to £925,000          5%
£925,001 to £1.5 million      10%
Above £1.5 million               12%

Note: An additional 5% surcharge applies to second homes and buy-to-let properties. Also, thresholds are changing from 01 April 2025.

Example 1—Timing is everything—Anne wants to purchase a flat for £300,000 as a buy-to-let investment. If the purchase is completed before 1 April 2025, she will pay SDLT of £17,500. However, if the completion occurs on or after 1 April 2025, the SDLT liability will increase to £20,000. 

SDLT for Auction Buyers: What to Know

Buying property at auctions can be exciting, often offering opportunities to purchase properties below market value. However, SDLT rules still apply, and auction buyers must act quickly to ensure compliance.

Key Considerations for Auction Buyers

1. Immediate Payment: Once the hammer falls, you are legally obligated to buy the property. SDLT must be factored into your budget alongside auction fees and deposit.
2. 15-Day Window: SDLT needs to be paid within 14 days of completion (not exchange). Since auctions often involve quick completions, you must be ready to file and pay SDLT promptly.
3. Purchase Price and SDLT Calculation: SDLT is based on the final hammer price, not the guide price. If you bag a property for £400,000, SDLT will be calculated on that figure.
4. Mixed-Use Properties: If the property includes residential and commercial elements, SDLT may be calculated under the more favourable non-residential rates.

Tax Planning Tips for Auction Buyers 

• Buy Mixed-Use Properties: Purchasing properties that combine residential and commercial use (e.g., a flat above a shop) can qualify for lower non-residential SDLT rates.
• Use Partnerships or Companies: If you buy through a limited company or partnership, SDLT may be optimized depending on your property portfolio.
• Sub-Sales Relief: If you intend to sell the property before completion to another buyer (sub-sale), SDLT can be minimized by applying for sub-sale relief.
• Multiple Dwellings Relief (MDR): Purchasers who exchanged before 06 March or completed before 01 June 2024, purchased multiple dwellings in a single transaction (e.g., blocks of flats), MDR can significantly reduce your SDLT liability.
• SDLT refund for unhabitable property: you may be eligible for SDLT refund on Uninhabitable properties, also known as derelict properties.
• SDLT refund on second home: You are eligible to apply for a refund if you have sold your previous main residence within three years of purchasing the new property.
• SDLT refund on Non-UK residents: You are eligible for a refund if you were in the UK for 183 days starting up to 364 days before the transaction's effective date and ending up to 365 days after the transaction.

SDLT on Probate Sales: What Executors and Beneficiaries Need to Know

When dealing with property as part of a deceased estate, SDLT implications can arise for buyers purchasing probate properties and beneficiaries inheriting property.

Key Considerations for Probate Sales

1. SDLT for Beneficiaries: If you inherit a property, SDLT is not payable at the point of inheritance. However, SDLT applies if you later sell or transfer the property to someone else for consideration.
2. Selling Under Market Value: Probate sales often sell at reduced prices to encourage quick transactions. Buyers must pay SDLT on the agreed sale price.
3. Quick Completions: Probate properties often attract investors seeking bargains, so buyers must ensure funds are available for SDLT within the 14-day window.

Tax Planning Tips for Probate Sales

• Transfer of Equity: Beneficiaries can transfer property between themselves without incurring SDLT, provided no money changes hands.
• Split Property Ownership: Executors or beneficiaries can split ownership of a large property into separate dwellings and claim Multiple Dwellings Relief (MDR) on the sale (abolished for property purchases since 01 June 2024.
• Sell as a Mixed-Use Property: If the estate property includes a residential and commercial element, classify it as mixed-use to benefit from reduced SDLT rates.
• Timing the Sale: If the property qualifies as the main residence and is sold within two years of inheritance, Capital Gains Tax (CGT) can be reduced, improving overall tax efficiency.

General SDLT Tax Planning Strategies

Whether you are buying at an auction or dealing with a probate sale, these general strategies can help reduce SDLT liability:

1. Claim Reliefs: Familiarize yourself with available SDLT reliefs such as:
   - Multiple Dwellings Relief (MDR)
   - First-Time Buyer Relief
   - Sub-Sale Relief
2. Opt for Lower-Priced Properties: Structuring property purchases under £250,000 avoids SDLT altogether for residential buyers.
3. Negotiate Consideration: Where possible, split the purchase price into fixtures and fittings, as SDLT only applies to the land/building value.
4. Use a Limited Company: For property investors, purchasing through a limited company can optimize tax efficiency, especially for higher-value properties.
5. Seek Professional Advice: SDLT is complex, and mistakes can be costly. A tax advisor can help identify reliefs and minimize liabilities.

Conclusion

Stamp Duty Land Tax (SDLT) can feel like a burden for buyers at property auctions and sellers dealing with probate sales. However, you can legally reduce your SDLT liability with strategic tax planning. Auction buyers should be prepared for immediate SDLT payment and consider reliefs, while probate sellers can benefit from careful structuring and timing of sales.

By understanding your options and seeking expert advice, you can navigate SDLT efficiently, saving money and maximizing value in your property transactions

For more information, contact Clearcut Accounting at [email protected]