Stamp Duty Land Tax - the low down so far for landlords and property investors

The Government has published its consultation on the proposed higher rates of Stamp Duty Land Tax (SDLT) for homeowners with more than one property.

As part of its Five Point Plan for housing announced in the Autumn Statement 2015, the Government has proposed revised stamp duty rates, affecting buyers who already own one or more residential properties and who are looking to purchase a second home or buy to let investment.

The consultation will run until the 1st February and while the final policy design will not be confirmed until the Budget on 16 March 2016, the key considerations as outlined in the consultation are highlighted here. 

The figures

The proposed new rates will be three percentage points above current stamp duty rates as the following chart explains.

 

Band

Existing Residential
SDLT rates

New additional
property SDLT rates

£0 - £125k

0%

3%*

£125k - £250k

2%

5%

£250k - £925k

5%

8%

£925k - £1.5m

10%

13%

£1.5m plus

12%

15%

*Transactions below £40,000 do require a tax return to be filed.

 

Timeline

Higher rates of SDLT will apply to purchases of additional residential property which complete on or after 1 April 2016 unless contracts were exchanged on or before 25 November 2015 in which case the surcharge will not be applied. 

Large scale property developers

Wary of discouraging significant investments in residential property, the government is careful to highlight that certain large scale investors may be exempt from the new rates. 

While it was announced in the Autumn Statement that only corporates and funds that have an existing portfolio of at least 15 residential properties may be exempt, the government is now suggesting that it may be more appropriate to target an exemption based on the bulk purchase of at least 15 residential properties, on the basis that bulk purchases are more likely to provide significant sources of finance and development certainty to a project. 

It also advises that where six or more residential properties are bought together, the purchaser can choose to apply the non-residential rates of stamp duty (which are not subject to the 3% surcharge) to the entire transaction value or apply residential rates of stamp duty (including the 3% surcharge if applicable) with Multiple Dwellings Relief applied. 

Married couple and civil partners

The Government treats married couples and civil partners living together as one unit. Therefore, if you are married or in a civil partnership and either of you owns one or more residential properties, then you are likely to pay the higher rates when either of you purchases another property. 

Joint purchasers

Joint purchasers will be treated in a similar way. At present the government proposes that if, at the end of the day of a transaction, any of the joint purchasers has two or more properties and is not replacing a main residence, the higher rates will apply to the entire consideration for the transaction (without any allowance being made for those joint purchasers who do not have an interest in another property. 

Parents helping their children on to the property ladder

Under certain circumstances higher SDLT rates may apply to parents helping their children on to the property ladder. For example, properties purchased by a parent already owning a house for or with their children will be subject to the higher rate of tax. Where the parent does not jointly own the property but provides money towards a deposit while also acting as guarantor on the mortgage, the 3% levy will not apply. 

Delay between buying and selling?

Where the sale and purchase of properties does not take place on the same day (complications with a chain, for example), a maximum 18-month period between the sale of a previous residence and the purchase of a new main residence has been proposed as to determine whether the higher rates apply. 

A refund mechanism has been proposed for those purchasers who pay the higher rate but then do sell their previous residential property within 18 months of the purchase of the new main residence. 

International property

SDLT only applies to property purchased within England, Wales and Northern Ireland. However, property owned globally will be taken into account when determining whether a property purchased in England, Wales or Northern Ireland is an additional property. 

If, for example, someone is purchasing their first or only property in England, Wales or Northern Ireland, they may pay the higher rates if they already own property outside these areas. 

Exemptions

Certain cases are, in the main, exempt from the higher 3% levy. Timeshares are not chargeable for SDLT purposes and as such the higher rates will not apply to the purchases of timeshares. 

Equally, individuals do not pay SDLT on inherited properties and there are no plans to change this. Inherited property will be relevant when determining if a purchaser is buying an additional residential property or not. 

The purchase of caravans, mobile homes and houseboats will be exempt from the higher rates of SLDT as are transactions under £40,000. 

Lastly, the higher rates of SDLT will only apply to purchases of residential property. The definition of residential property and non-residential property will not change following the introduction of these higher rates. Therefore, a buyer of a non-residential property will never pay the higher rates of SDLT, even if it is later converted into residential property. 

Tax Avoidance

In the consultation it is explained that if the government were to treat companies and collective investment vehicles in the same way as individuals, allowing the purchase of a first residential property to be exempt from the higher rate of tax, a potential tax avoidance opportunity would arise. 

Specifically, an individual could purchase an additional property via a company to avoid the higher rates of stamp duty. 

As a result, the government has proposed that first purchases made by companies or collective investment vehicles will be subject to the 3% surcharge to guard against tax avoidance risks. The precise manner in which this will operate will be determined by the results of the consultations concerning large scale investors. 

It is highly likely that the “Tax Avoidance Industry” will move into over-drive to find ways of avoiding this 3% SDLT surcharge. Investors should exhibit extreme caution before adopting any avoidance “scheme” since HMRC will undoubtedly be extremely vigilant in rooting out and shutting down such schemes – and will quite likely be successful in getting them overturned by the Courts. 

Changes in administration

The current return form will be revised so as to comply with the new higher rates. Buyers are responsible for the accuracy of their return and guidance will be provided by HMRC. The government is also considering how it can support conveyancers in this process. 

The final policy design will be announced at the Budget on 16 March 2016. Relevant parties and stakeholders have until 1 February to respond to the consultation.

 

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Our latest BTL Tax Calculator. Download this spreadsheet to see how the restrictions in BTL mortgage interest relief and the 3% SDLT surcharge could affect your portfolio.

 

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