Changes to SDLT rates for residential property purchases – post consultation22 Feb 2016
The government has proposed changes to Stamp Duty Land Tax (“SDLT”), for higher rates to be payable from 1 April 2016 on the purchase of additional residential properties. Following closure of the consultation period on 1 February 2016, it has become apparent that a number of conveyancing bodies have concerns with the proposals, including the Conveyancing Association and the Council of Mortgage Lenders (“CML”), both of whom are urging the government to defer the introduction of the rules. CML are concerned that the plans may have a negative impact on the housing market as a whole. HM Treasury is due to announce the final arrangements with its 2016 Budget, published on 16 March 2016.
It is proposed that from 1 April 2016, higher rates of SDLT will apply to the purchase of additional residential properties for chargeable consideration exceeding £40,000. The higher rate will be 3% above the current SDLT rates for residential properties, and will apply on a progressive basis as follows:
|Property value band||Basic SDLT rate||SDLT rate on additional properties|
|£0 – 125,000||0%||3% (properties under £40,000 = 0%)|
|Over £125,000 to £250,000||2%||5%|
|Over £250,000 to £925,000||5%||8%|
|Over £925,000 to £1.5 million||10%||13%|
|Over £1.5 million||12%||15%|
It is proposed that the higher rate will apply to purchases completed on or after 1 April 2016 unless exchange took place before 26 November 2015 (for example, in the case of an off-plan purchase).
If SDLT is underpaid as a result of a careless or deliberate mistake, penalties of up to 100% of the understated tax may be payable.
Application of the higher rates
If a purchaser is buying a property as a replacement for an existing residence but, at the date of completion, still owns the original property, SDLT must be paid at the higher rate. A refund for the difference between the higher rate and basic rate can be obtained if the original home is sold within 18 months.
Provided the purchaser does not own any other property, either in their own name or jointly, and is not beneficially entitled to a residential property under a trust, the higher SDLT rate will not apply to the purchase of a residential property, regardless of whether the property is acquired as a home or as a buy-to-let.
To prevent avoidance through use of a company, the higher rate will apply whether the purchaser is an individual, a partnership, a company or a trust unless a special exemption applies, including those exemptions set out below. The exemption from the higher rates available for individuals on the purchase of their first residential property will not be available for companies.
Any caravan, mobile home or houseboat may be disregarded.
Exemptions and reliefs:
- It is proposed that the higher rates will not apply to corporate or fund purchasers that make significant investments in residential property. The government is considering whether to exempt bulk purchases of 15 or more properties in a single transaction or purchases by funds and corporates with an existing portfolio of more than 15 properties from the higher rates. The aim of this exemption is to encourage investment that is not in competition with individual homebuyers. Consultation has been sought as to whether this should be extended to individuals who are large scale investors.
- Purchase of properties for less than £40,000. If the total chargeable consideration exceeds £40,000, the entire consideration will be subject to SDLT.
- Multiple dwellings relief is to continue in its present form.Effect on lending
Where lenders are advancing funds to older borrowers, it has become common for lenders to require the parents to purchase property jointly with one of their adult children, so both names appear on the mortgage. Existing arrangements of this kind will not affect the rate of SDLT that the parents pay when they sell their own home and move to a new one. However, any new joint ownership arrangement that parents enter into after 1 April 2016 will cause the higher rate of SDLT to apply to their children’s property. An alternative method of structuring the finances may need to be adopted with the property bought in the sole name of the child.
It appears that the consultation process did not address the issue of mortgage offers or the effect that a delay in selling an existing home may have on the purchaser’s ability to complete, given the need to pay the additional SDLT upfront. This will be an ongoing problem and one that the mortgage industry will need to address as a matter of urgency.
Borrowers and their solicitors will, no doubt, try to complete deals before 31 March 2016. It will be important to manage Borrower’s expectations concerning timescales to try and avoid the risk of being held responsible for delays. Borrowers will need to confirm they will still be in a position to proceed, even if the deadline is not met.
For more information and advice, please contact Duncan McGregor in our Residential Team or Olinda Auty in our Real Estate Finance Team on 0161 832 3434.