Hot on the heels of the Chancellor's announcement in the 2015 Autumn Statement that additional Stamp Duty Land Tax (SDLT) of 3% is to be payable from 1 April this year on the purchase of additional residential properties in England and Wales (i.e. those purchased other than as a main residence), the government is consulting on how the measure is to be implemented.
The consultation opened on 28 December 2015 and closes on 1 February 2016 - a short period for such a major change. Commentators have expressed that this smacks of "tax policy on the hoof". Draft legislation is expected by the 2016 Budget (on 16 March 2016) and the changes are expected to apply from 1 April 2016. We summarise below the government's proposals - it is possible that these may change as a result of the consultation.
Following the changes to the regime introduced in 2014, SDLT is charged on the purchase of residential property using a "slice" system. The different rates of SDLT are set out in the table below. The relevant rate of tax applies to the part or slice of the purchase consideration that falls within that price band. This generally meant a reduction in tax paid by buyers at the lower end of the market.
Click here to iew table.
The new higher rate will not apply to purchases where a buyer does not own another home even where a property is being purchased as a buy to let. However, homes owned outside of England and Wales are to be taken into account. The changes are likely to apply to whatever purchase vehicle or entity is used to prohibit avoidance tactics such as corporate wrappers. Further, the changes are likely to apply where a husband and wife buy a property together and one of the couple (or both) already owns a property in their own name. Similarly, the higher rate will apply to the total purchase price paid by joint purchasers in a transaction where any one of the joint purchasers has two or more properties and is not replacing their main residence.
The higher rate will apply to purchases which complete on or after 1 April 2016 unless exchange of contracts took place before 26 November 2015 (for example in the case of an off plan purchase or less commonly, a conditional contract with a long completion date). It is anticipated that the legislation will include transitional provisions so that, for example, variations to or assignments of contracts exchanged before 26 November 2015 may result in the new higher rates applying.
The consultation document also proposes the following:
- If a new main residence is purchased prior to the sale of the current main residence, then the higher rate will apply to the purchase, but a refund can be claimed where the former main residence is sold within 18 months of the new purchase.
- If contracts are exchanged on or after 25 November 2015 then the higher rate will apply only if the purchase does not complete before 1 April 2016. If the contract pre dates 25 November 2015, the higher rate will not apply regardless of when the purchase completes.
- An exemption has been proposed for large scale investors (as further detailed below).
- Multiple Dwellings Relief will continue to apply where multiple residential dwellings are purchased in a single or linked transaction.
Unsurprisingly, there has been considerable concern in the industry as to the impact these changes will have on the buy to let market, which many consider has already peaked. However, the Chancellor’s intention appears to be to diminish the appetite of would be landlords – part of a general offence against private landlords, which also includes changes introduced to the Capital Gains Tax regime.
The generation of PR friendly headlines aside, the rationale behind the additional tax is to assist first time buyers, by discouraging the purchase of second and multiple homes so those homes are instead available to “generation rent” struggling to get on the property ladder. It is estimated that 150,000 transactions will be caught by the change annually – the majority of these, buy to let.
However, despite the excitement and hyperbole surrounding the shock statement, the changes will impact few on a day to day basis. The contribution made by major investment in residential properties by corporates is acknowledged, and the government is considering whether to exempt bulk purchases of 15 or more properties in a single transaction or purchases by investors and corporates with an existing portfolio of more than 15 properties (the former route appears to be emerging as the favoured one). This type of large scale investment is not seen to be in competition with individual homebuyers. It is recognised that major investment of this nature can help developers to finance a development opportunity and to build out sites faster, and therefore can lead to an overall increase in housing supply. Views are sought on whether this exemption should be extended to individual large-scale investors.
Non-residential property is unaffected. This includes commercial property (such as warehouses, shops or offices), agricultural land, bare land (even where this may subsequently be used for residential development), 6 or more residential properties bought in a single transaction of mixed use property and any other land or property which is not used as a residence.
The purchase of residential property over £500,000 in a corporate or non-natural person vehicle currently attracts a higher SDLT charge of 15% on the entire purchase price (based on the historic “slab” system rather than the “slice” system). This rule will still apply in the first instance, but where it does not apply such buyers will need to consider the additional rate rules. Buy to let is currently exempt from the 15% SDLT charge and this should remain the case.
SDLT is payable within 30 days of the “effective date” of a transaction, which is usually the completion date but the government is to consult on whether the filing date for returns should be reduced to 14 days from the effective date.
The government is already most of the way through its fleeting consultation window and will consider all responses before the final policy design is confirmed in the March Budget. The higher rates of SDLT are expected to apply from 1 April 2016.