The Autumn Statement proposed the introduction of a new 3% additional stamp duty land tax (SDLT) charge when a purchaser acquires additional residential property. There is a dual purpose behind the policy. Firstly, to discourage small scale investors from purchasing properties (to the detriment of first time buyers) through an additional tax charge. Secondly the Government intends to recycle some of the additional tax receipts to fund investment in delivering new homes.
The new rate will, subject to exceptions, apply where an individual will, at the end of the day on which a residential property is acquired, own more than one residential property. To combat possible avoidance, the first acquisition (and any subsequent acquisition) of a residential property by a company or collective investment scheme will also be subject to the additional charge.
The Government has now launched a consultation into the operation of the additional 3% charge. These are some of the more interesting points that arise from it.
Married couples, civil partners and joint purchasers
HMRC will treat a married couple, civil partners and joint purchasers as a single unit when applying the new rules. This means that one purchaser may have to pay the higher rate of SDLT even if they do not own another residential property.
Delay following sale of previous main residence and purchase of new one
The higher rate will not apply where an individual (including one who owns more than one property) sells their main residence and acquires another. However, the new main residence must be acquired within 18 months of the disposal of the original main residence.
Purchase of a new main residence prior to the sale of old main residence
An individual will have to pay the additional 3% rate if they acquire a new main residence unless they simultaneously dispose of their existing one. However, if they subsequently sell their old main residence within 18 months of the acquisition of the new main residence, the individual will be able to apply for a refund of the additional SDLT.
Residential properties held outside England, Wales and Northern Ireland
All residential property, wherever situated, will be taken into account when determining whether or not a property transaction falls within the new 3% additional charge. Therefore, the first purchase of property in England, Wales or Northern Ireland may still be subject to the additional SDLT charge if the purchaser holds residential property elsewhere in the world.
Furnished holiday lettings
Furnished holiday lets will be treated in the same way as all other residential properties acquired or held by a purchaser. This contrasts to caravans, mobile homes and houseboats, which are excluded from the higher rate and are not taken into account when determining whether a new property purchase is an additional property.
Large scale investors
The consultation suggests that there will be a potential exemption from the new additional charge that is designed to benefit large scale investment in residential property as this is perceived to help the market generally rather than to prevent buyers from owning their own homes. The nature of the exemption is unclear but it was originally expected to cover only corporate and collective investment scheme purchasers. However, the Government now appears to acknowledge that the principle can also apply to individuals.
One option is that it will benefit investors who have an existing portfolio of at least 15 residential properties. Alternatively, it may benefit investors who acquire at least 15 residential properties in a single transaction.
Purchases by bare trustees will be treated as if made by the beneficial owner. Similarly, beneficiaries with a life interest or interest in possession under a trust owning residential property will also be treated as ‘owning’ residential property held by the trustees. The number of properties owned by the beneficiary will be used to determine whether or not the higher tax rates apply.
Interests in remainder or discretionary interests in property will not be treated as being held by the beneficiary. This means that purchases by trustees, where beneficiaries have no interest in possession over the property, will be liable to the higher rates. Nonetheless, the additional rate should not apply to either the purchase of an individual beneficiary’s residence (where no property is owned by the individual) or to the replacement of a beneficiary’s only or main residence.
We are indebted to Birketts, Solicitors for this text.