Cladding Crisis and SDLT Relief: What Affected Property Owners Need to Know

The United Kingdom's cladding crisis centres on the widespread use of unsafe external wall systems in residential buildings creating concerns about home’s safety and marketability. Property owners affected by these issues face significant delays when they attempt to replace their previous main residence with a new home. Without required safety clearance, such as the External Wall Survey (EWS1) certification, their properties remain unsellable for extended periods.

One obvious consequence of this delay involves the Stamp Duty Land Tax (SDLT), a tax charged when purchasing property in England and Northern Ireland. In particular, the higher SDLT rates, imposed on purchasers of additional residential properties, have proven to be burdensome for affected property owners. But wait—there's hope! Thankfully, you may be eligible for relief provisions designed to help those affected.

Why You May Be Paying an Extra 5%

Under normal circumstances, purchasers of additional residential properties are subject to the higher rates of SDLT, currently an additional 5% on top of the standard residential rates. However, the legislation provides a relief on the higher rates if you are replacing your previous main residence with a new one. This relief applies whether you choose to sell the previous main residence before or after the new purchase. In situations where the sale takes place before purchasing a new property, the relief is applied automatically at the effective date of transaction. In contrast, where the sale occurs after acquiring a new property, the higher rate is initially paid and a relief may be claimed, provided the previous main residence is sold within three-years of the effective date of transaction.

For Property owners affected by the Cladding crisis, meeting this three-year timeframe can be particularly challenging. Especially since fixing the cladding, getting the EWS1 certificate, and then putting the property up for sale will probably take quite a bit of time.

Can You Get More Time to Sell? HMRC Thinks So

The good news for taxpayers is that HMRC has recognised these unique challenges and acknowledged in its guidance (SDLTM09807) that such a “exceptional circumstance” may justify extending the three-year period for disposing of a previous main residence. Critically, the guidance includes a detailed example that directly addresses cladding-related delays.

It describes a scenario in which a couple purchased a flat in early 2017, before the cladding crisis became apparent, and subsequently purchased a new main residence in January 2020. They were unable to sell their original property within the standard three-year period due to delays in securing an EWS1 certification and completing necessary remediation works. The guidance confirms that such circumstances can qualify for relief, provided several key criteria are met.

• The delay in selling the previous main residence must be directly attributable to cladding-related issues;
• The cladding defects must not have been reasonably foreseeable at the time of purchase;
• The previous main residence must be sold as soon as reasonably practicable once the obstruction (e.g. remediation delay) is removed.

Importantly, the relief is not available where the taxpayer purchased a property with knowledge of the cladding problems, as HMRC considers the resulting difficulties to have been foreseeable.

How to Strengthen Your Case for Relief

The burden of proving that their situation meets the criteria for exceptional circumstances lies with the taxpayer. HMRC assesses each case individually and there is no right of appeal where extension to the normal time limit is denied, making a thorough and well-supported submission essential.

For property owners who purchased new homes while owning cladding-affected properties, the potential for SDLT relief represents an important opportunity to recover a substantial sum. Given the complexity of the relief provisions and the discretionary nature of HMRC's approach, seeking professional advice is strongly recommended.