In this uncertain time, it is tempting to enter into arrangements to vary the terms of a property contract. By reducing the consideration payable, the seller can improve their cash flow position, whilst the buyer reduces their cost. However, such a variation may have unexpected SDLT consequences, as set out below.
For many off-plan purchases or long term acquisition contracts, the contract or agreement for lease will have been entered into at a much earlier date. In many cases, it may be possible for the purchaser to take advantage of historic SDLT rates, or to escape the imposition of the additional 3% rate of SDLT on acquisitions of additional residential properties (the 3% Surcharge).
However, the implementing legislation provides that the transitional provisions do not allow the old SDLT rates to be applied where the original contract is subject to a variation, assignment or sub-sale after the announcement of the new legislation.
So, for example, an agreement for a lease entered into on 1 October 2015 would not have been subject to the 3% Surcharge upon its eventual completion but, as a result of a variation now to reduce the purchase price in light of Coronavirus (COVID-19) uncertainty, the 3% Surcharge would apply to that acquisition. To give an example, if a £1,000,000 London apartment is reduced to £950,000, the SDLT liability increases from £43,750 to £67,250, almost halving the saving from the variation.