The Finance Act 2012 introduced a new 15 per cent top rate of SDLT on the acquisition of £2m+ dwellings by certain “non-natural persons” (companies, partnerships which included at least one corporate partner, and collective investment schemes).
It was part of a suite of tax changes (the others being the introduction of the new annual tax on enveloped dwellings or “ATED” as well as changes to the application of capital gains tax on the disposal of these high value homes). The stated aim of these changes was to discourage taxpayers from acquiring or holding high value residential properties within corporate wrappers (so HMRC did not apparently expect many taxpayers to have to pay the charges, since their existence would discourage people from undertaking transactions subject to the charge).
It seems taxpayers were not as discouraged as HMRC expected – because the SDLT threshold was unexpectedly reduced from £2 million plus to £500,000 in this year’s Budget. One suspects this may, in fact, be more to do with revenue raising that influencing taxpayer behaviour. The change in the SDLT threshold took effect more or less immediately, but the changes to ATED and CGT will be more gradual (with the thresholds reducing to £1 million plus in April 2015 and then £500,000 plus in April 2016).
The reduction in thresholds to what are, given the current state of the housing market, reasonably moderate levels means that many more taxpayers now need to consider these charges. In the agriculture sector, they will be particularly relevant to large estates, but also potentially farmhouses within larger holdings.
When the SDLT charge was first introduced, there were only very limited exemptions – but these have since been supplemented. For farming sector clients and taxpayers, the key exemptions are likely to be:
- The SDLT charge does not apply if the property is being used for the purpose of a property rental or property trading / development business (subject to certain anti-avoidance conditions to ensure that this is a bona fide business activity)
- There is an exemption where the property is “made available to the public” for at least 28 days per year (which could potentially benefit farmhouse B&Bs as well as stately homes)
- No charge arises in relation to farmhouses occupied by farm workers for the purposes of their day-to-day activities in the course of the farming trade
There are similar exemptions for the ATED and CGT charges – albeit those charges still only currently apply where the dwelling is worth £2 million plus. But the gradual reduction of the thresholds at which these two charges bite means that, in future, they will also become increasingly relevant.
Complex factual issues frequently arise in practice. For example, what happens if a large estate is acquired which includes a valuable dwelling – but also other commercial use property and land? (The answer is likely to be that an apportionment is necessary, with 15 per cent SDLT payable on the amount paid for the dwelling and normal rates of SDLT for the other elements.)
All these changes, together with other reforms in relation to residential property (for example, the SDLT relief introduced in 2011 for purchases of multiple residential properties, which is incidentally inapplicable to these higher value homes) mean that the SDLT treatment of some residential transactions is now rather complex.
If you or your clients are considering using a company, partnership (with corporate partner) or collective investment scheme to purchase a residential property worth £500,000 plus then you need to take detailed tax advice – or you could face some unexpected and punitive tax charges!