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Stamp Duty Land Tax

The 3% Stamp Duty land tax surcharge continues to vex property practitioners with details of how the surcharge will be applied being left to the last minute. However, it is now clear that an extra 3% will apply to all purchases of property not intended to be the purchaser’s main home, with no exemption for large scale investors.

The HM Treasury says this measure will raise more than £600 million, some of which will go on a new £115 million scheme to help the homeless.

We have reviewed the announcements made by the Chancellor in his Spring Budget and have identified the key facts for you:

  • As of the 1st of April 2016 there is an increase on Stamp Duty for additional properties.
  • This is valid for purchase transactions completed after the 1st of April where exchanges have taken place after the 26th of November 2015.
  • The purchase is a second property, regardless of whether it is used as a holiday home, buy to let or becoming your main residents and you are letting out your old property.
  • If you are buying the new property as your main residence and are planning to sell your former home, you have 18 month to do so. If sold within 18 month you can claim back the additional stamp duty after your former property has sold.
  • If the buyer is from outside the UK or does not have residential status the new rules apply as well. If any additional property is owned worldwide the new rate applies when buying property in the UK.
  • Excluded are purchases of caravans, mobile homes and houseboats as well as purchases under £40,000.

These are the new rates effective from 1 April 2016:

Band Existing Stamp Duty Rate Stamp Duty Rate for additional property from April 1st 2016
Up to £125 000 0% 3%
£125 000 – £250 000 2% 5%
£250 000 – £925 000 5% 8%
£925 000 – £1 500 000 10% 13%
Over £1 500 000 12% 15%

 

  • Stamp Duty is due 30 days after the purchase has been completed.  A Stamp Duty Land Tax return needs to be submitted following completion and both are usually done for you by your solicitor. Even if no stamp duty is due the return still needs to be submitted.
  • No stamp duty has to be paid if you are getting divorced or getting separated from your partner and are transferring a proportion of your house to them.  Also if you are gifting your property or leaving it in a will stamp duty is not applicable.

 

Stamp Duty Land Tax changes for Commercial Property & Mixed Use Property

With effect from 17 March 2016 (subject to transitional rules), the SDLT rates structure for sales of and grants of leases in, non-residential and mixed property will be changed. The effect of the changes will be that, for sales and grants of leases of such property, the same or less SDLT will be payable if the non-rental consideration is £1.05 million or less and, in the case of SDLT on rent, leasehold transactions with an NPV of up to £5 million will pay the same SDLT as under the current rate structure. However, for higher value transactions, the SDLT charge will increase. These measures will be included in the Finance Bill 2016, but be subject to a resolution under the Provisional Collection of Taxes Act 1968.

For sales, the new rates structure adopts the fairer “slice” system under which that part of the entire consideration falling within a particular band is taxed at the rate applicable to that band (the slice system already applies for rent consideration). This replaces the existing “slab” system under which SDLT is levied at a single rate on the chargeable consideration for the transaction. The new rates for sales and lease premiums (non-rent consideration) are as follows.

Rate band Rate
So much of the consideration as does not exceed £150,000 0%
So much as exceeds £150,000 up to £250,000 2%
So much as exceeds £250,000 5%

Additionally, paragraph 9A of Schedule 5 to the Finance Act 2003 will be repealed with effect from the same date. This means that the nil rate band will apply to all leases, including those with an annual rent of £1,000 or more.

A new 2% rate for rent consideration paid on the grant of a lease is introduced from 17 March 2016. The new rates for rent consideration are as follows.

Net present value of rent Rate
£0-150,000 0%
Over £150,000 up to £5 million 1%
Over £5 million 2%

Under transitional rules, these measures do not have effect in relation to a transaction if the buyer elects and either of the following apply:

  • The transaction is effected in pursuance of a contract entered into and substantially performed before 17 March 2016.
  • The transaction is effected in pursuance of a contract entered into before that date and, broadly, it has not been varied, sub-sold or assigned on or after 17 March 2016 (for more detail on this see clause 1(15)).

The new rates structure gives rise to complications in relation to linked transactions (where a transaction taxed under the old rates structure may be linked with one taxed under the new structure) and for certain types of lease transactions. HMRC’s guidance note addresses some of these situations.

Source: Practical Law 2016 Budget Review