April 2014 saw the end of the first charging period for the Annual Enveloped Dwelling Tax (“AEDT”). Arguably if the government did something about the high levels of SDLT, there would not be a need for AEDT with all its attendant complications.
In May 1997 stamp duty was a flat tax charged at 1% on any transaction over £120,000. In the preceeding years governments have increased rates and reintroduced the band system abolished in the 1980’s. Rates begin at 1% above £125,000 rising to 7% where the price exceeds £2million. For properties subject to AEDT it is 15%. The most iniquitous aspect of SDLT is the band system; that means you pay the highest rate of tax on the whole purchase price.
High tax rates mean taxpayers devise avoidance methods. This leads to government anti-avoidance measures and complexity. The AEDT is a case in point. It was enacted to discourage the purchase of dwellings in the name of a company so as to avoid a hefty SDLT bill when the dwelling was later sold. SDLT is avoided by a transfer of shares in the company owner as opposed to a conventional transfer of the legal title to the property.
There are many instances where companies purchase dwellings for reasons unconnected with avoiding SDLT. So the AEDT contains the inevitable litany of exemptions sometimes with complex conditions which taxpayers and legal advisers have to address where property is put into the name of a company other than to avoid SDLT on a future transfer of the property.
It is too much to expect a return to a flat tax such in 1997. However, the government ought to address the band system. Scotland and Wales are to introduce their own versions of SDLT so the UK tax may soon face competition