Coronavirus: SDLT consequences - Quick reads - Gateley
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Coronavirus: SDLT consequences

Gateley Legal

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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. 

Our advice

Before you enter into any variation, we recommend that you take suitable tax advice to ensure that there are no unexpected tax consequences to your transaction.

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