Changes to the rates of SDLT payable on the purchase of buy-to-let and second homes
A key element of the Chancellor’s Autumn Statement, delivered on 25 November 2015, was the announcement of the Government’s plans to introduce higher rates of Stamp Duty Land Tax (SDLT), to be chargeable from 1 April 2016 on purchases of additional residential properties, such as buy-to-lets and second homes, where the price payable is more than £40,000.
The Government has announced that it will use some of the additional tax collected to provide £60 million for communities in England where the impact of second homes is particularly acute and that the tax receipts will also help towards doubling the affordable housing budget.
The higher rates of tax are to be 3% above the current SDLT rate payable on a domestic property transaction, but will not apply to purchases of caravans, mobile homes or houseboats, or, currently, to companies or funds making significant investments in domestic property. However, the 15% rate of tax applicable to purchases of residential properties over £500,000 by ‘non-natural persons’ remains unchanged.
The Government is currently consulting on the policy detail, including whether an exemption for companies and funds owning more than 15 residential properties is appropriate, and HM Treasury has commenced a consultation process regarding the proposed changes, which will close on 1 February 2016. The Government has confirmed that it will consider all responses to the consultation before confirming the final policy design in the Budget on 16 March 2016.
Further to the Chancellor’s announcement on 25 November 2015, clarification has been sought from HM Revenue & Customs (HMRC) as to the tax treatment of purchasers who have already exchanged contracts to purchase an additional residential property, or who are due to exchange contracts before 1 April 2016, for completion on or after 1 April 2016. Inevitably, there has been conflicting advice, but the current understanding is that purchasers of additional residential properties who exchanged contracts before 26 November 2015 will avoid the additional 3% SDLT charge, even if they complete on or after 1 April 2016. However, unfortunately, it would seem that purchasers of additional residential properties who exchange contracts after 25 November 2015 will be caught by the new rules if they complete on or after 1 April 2016. Further clarification is being sought from HMRC and we shall endeavour to clarify the position further in due course.
It should also be noted that in relation to the purchase of new-build, or ‘off-plan’, properties unfortunately the date for legal completion is set by the developer and, as such, legal advisors will not be in a position to confirm the date for legal completion of such properties until they are served with notice to complete, under the terms of the sale Contract. Any estimate regarding a completion date given by or on behalf of the developer before notice to complete is served will not be legally binding.
Finally, a practical point arising is that, due to the recent changes made to tax relief on loan interest, many purchasers may currently be considering the benefits, and in some cases commencing the process, of transferring buy-to-let or second properties to a limited company. However, it should be noted that incorporation and transfer of property attracts several tax-related issues, including potential charges to SDLT and Capital Gains Tax (CGT). Therefore, specialist advice should be sought to clarify the position before any action is taken.
Please note that this is a highly technical area in respect of which clients will need to take specialist advice before proceeding with a specific transaction. The above summary is provided by way of guidance only and does not constitute legal advice in relation to any particular transaction.