Higher Rates of SDLT on Purchases of Additional Residential Property
New higher rates of Stamp Duty Land Tax (SDLT) have been introduced by the Government on purchases of additional residential property. These rates apply to purchases on or after 1 April 2016, subject to transitional relief.
The additional rate of 3% is now payable where the value of the dwelling exceeds £40,000 and:
- an individual purchaser is buying an additional residential property and they are not replacing their main residence; or
- a company (or other “non-individual”) is purchasing residential property.
The new SDLT rates have been introduced as part of the Government’s plan to support first time buyers. The higher rates are therefore applicable in most cases where individuals purchase additional residential properties or when companies purchase residential property. The Government indicated in their 2015 Autumn Statement that they were considering exemptions for developers and corporates or funds with portfolios of at least 15 residential properties. However, controversially, these exemptions have not materialised. Higher rates now apply even to the purchase of a first property by a non-individual purchaser.
Despite the reforms to the SDLT rates for non-residential and mixed use property, announced in the March 2016 Budget, there is now even greater disparity between the SDLT payable on the purchase of additional residential, and non-residential or mixed use properties. There has therefore been more discussion about what constitutes a “dwelling” for SDLT purposes, as the higher rates for additional residential properties will only apply to such a property. A “dwelling” is defined as a building or part of a building that is used or suitable for use as a single dwelling, or is in the process of being constructed or adapted for use as a dwelling. The question as to whether part of a garden of a house is residential or bare land will be very much down to the circumstances of each transaction. Where it is not so clear, such as if there is land which may not necessarily form part of, or be enjoyed with, the dwelling itself purchasers should bear in mind HMRC’s general attitude to tax avoidance. We hope that more guidance on the issue will be released shortly.
If 6 or more residential properties are bought in a single transaction, the purchaser can choose to apply either the non-residential rates of SDLT or the residential rates of SDLT with multiple dwellings relief applied.
The higher rates of SDLT add to what is already a complex scheme of rules. There are many issues to consider when determining the SDLT payable on a transaction and there is currently limited HMRC guidance on most aspects of the new charges. In many cases, purchasers will need to be prudent in their approach to the new rates.
For advice on this and other development issues contact Tim Hardesty, Head of Real Estate at Herrington Carmichael LLP