As has been widely reported, the Government has introduced two significant changes to SDLT – a new 7% top rate for properties over £2m, and a penal rate of 15% for properties over £2m bought in the name of companies.
The new 7% rate
As with the new 5% rate for residential properties over £1m introduced in the 2010 Budget, the new 7% rate applies only to residential properties. The current use of the property at the date of completion will be the determining factor, so buying a non-residential property with an intention (for example) to convert to flats would not attract the top rate. Undeveloped land would in principle not constitute residential property, but garden land may or may not be – land needed 'for the reasonable enjoyment' of an existing dwelling taking into account its type and size will be considered by the Revenue to be residential. The new rate applies to transactions completed after 21 March 2012, unless a contract was in place prior to 22 March 2012.
The new 15% rate
The Government has for some time been looking to clamp down on the use of single-purpose companies to acquire properties with the intention of selling the company rather than the property and therefore the buyer only paying 0.5% stamp duty on the purchase of the shares rather than a higher rate of SDLT on a purchase price for the property. This has never been brought into effect; I suspect because of difficulties in setting out definitions that would catch single-purpose companies but not genuine property businesses holding only one significant property at the time.
Reporting before the Budget centred around the use of foreign companies, but the new rate goes further and covers the purchase of all residential property over £2m by 'non-natural persons', ie companies, LLPs or partnerships where one partner is a corporate entity, or collective investment schemes, whether UK-registered or foreign.
Institutional property owners and investors have quickly expressed their disappointment over the change, and lobbying of the Government has already started. Bodies such as the Grosvenor Estate and Cadogan indicated to the FT that the new rate would damage their business and deter investment into UK property, particularly in London.
A mansion tax?
Pre-Budget reporting also discussed a 'mansion tax', a one-off or annual charge on high value properties already owned. This was not included in the 2012 Budget, but perhaps as a concession to the Liberal Democrat members of the Government, a consultation will take place on introducing an annual charge for residential properties over £2m owned by certain 'non-natural persons' in next year's Budget. An annual charge of £15,000 is currently proposed, increasing sharply for properties valued at over £5m. Detailed proposals have not yet been published, so it is not yet clear whether the Government will try to shoe-horn this into the existing SDLT scheme, and what requirements or bases for valuation there may be. Those potentially affected will no doubt be keeping an eye open for the consultation