The Government’s determination to crack down on what it perceives to be widespread SDLT avoidance was widely trailed before this year’s Budget. However, the severity of the new measures took some commentators by surprise.
The two most important changes to SDLT were as follows:
- SDLT: increased 7 per cent top rate for £2 million+ residential property: a new 7 per cent rate of SDLT now applies to the acquisition of UK residential properties, where the chargeable consideration is over £2 million (applying to freehold purchases, lease assignments and lease grant premiums).
The draft legislation introduced to Parliament on this point does not affect the SDLT relief for multiple residential purchases (which charges an SDLT rate set by reference to mean average property values rather than aggregate values), the application of which may become more valuable from now on.
- SDLT: new 15 per cent rate for enveloping high value residential property: where one or more UK residential properties each worth more than £2 million are acquired by certain “non-natural persons”, the rate of SDLT is 15 per cent.
The increased charge is intended to prevent the widespread acquisition and transfer of high value homes (especially in London) by non-UK residents through corporate entities, but the draft legislation is wider than this. For these purposes, a “non-natural person” is a company (other than, in some circumstances, a corporate trustee or established property developer); a partnership where one or more of the partners is a company; or a collective investment scheme.
The legislation is fairly complex, and also includes changes to the SDLT relief for multiple residential purchases so that it is not possible to circumvent the 15 per cent charge by acquiring additional, much less valuable, property at the same time. It is clear that the Government is serious about disincentivising the use of these kinds of structures for high value residential properties, especially taking into account the following:
- a new “GAAR” (general anti-abuse rule) is to be introduced, which will cover SDLT;
- the disclosure regime for tax avoidance schemes and transactions covers transactions designed to avoid SDLT on the acquisition of high value residential property;
- the Budget mentioned the possibility of an additional annual charge for residential property held in this way, as well as future SDLT anti-avoidance legislation if necessary (which would take effect retrospectively from 21 March 2012); and
- the Budget also makes changes to CGT to bring these properties within the UK charge to CGT).