The full article and the tables referenced can be found on page 7 of our Agricultural Brief publication.
From 1 April 2016 the acquisition of residential property in the UK may attract an additional 3% rate of Stamp Duty Land Tax (SDLT). Please see Table 1 showing the normal residential rates payable on the acquisition of a freehold or on the premium paid for a lease together with the new higher rates.
The rules have been slightly relaxed in a number of areas from the position announced in November, however they are still widely drafted and can catch apparently innocuous transactions.
The higher rates do not apply to commercial or mixed-use properties or where a residential property is purchased for less than £40k. The acquisition of a farmhouse and farmland should therefore be treated as mixed use and subject to the non-residential rates (please see table 2). The higher rates of SDLT will also not be charged on acquisitions of high value dwellings which are already subject to the 15% rate of SDLT payable by ‘non-natural’ persons (e.g. a corporate purchaser). The impact of the 15% rate for ‘non-natural’ persons may still need to be considered when such an entity acquires a dwelling for more than £500k.
The higher rates will be payable if an individual already owns another residential property worth more than £40k (wherever situated) when they acquire a second (or subsequent) residential property. The only exception is if the new property will be used as a main residence and replaces a previous main residence that has been sold (even if the taxpayer owns more than one dwelling). However, the new main residence must be acquired within 36 months of the disposal of the original main residence (although the time limit is relaxed for disposals of main residences on or prior to 26 November 2015). An individual will have to pay the additional 3% rate if they acquire a new main residence unless they have disposed of their existing one. However, if they subsequently sell their old main residence within 36 months of the acquisition of the new main residence, the individual will be able to apply for a refund of the additional SDLT.
HMRC will usually treat a married couple, civil partners and joint purchasers as a single unit when applying the new rules. This means that one person may have to pay the higher rates of SDLT even if they do not own another residential property. This can cause an unexpected increase in the SDLT liability for someone who acquires their first property jointly with another who already owns a residential property and is not replacing a main residence. The rules treating married couples and civil partners as a single unit will not apply where a couple are legally separated or separated in circumstances where the separation is likely to be permanent.
2. Company or collective investment scheme
Notwithstanding our comments about the maximum rate of SDLT payable by a ‘non- natural’ entity, the additional rate will be payable if a company or collective investment scheme acquires a residential property. This is regardless of whether this is a first or subsequent purchase by that vehicle.
Where an individual partner acquires an interest in a residential property in their personal capacity, rather than for the purposes of the partnership, any interest in a residential property held by the partnership for the purposes of its trade is not treated as held by or on behalf of the partner. If the exception does not apply, residential property held by the partnership will be treated as held by the partners.
A beneficiary under a bare trust will be treated as owning the underlying residential property and the rates will apply as if the beneficiary had acquired the property themselves. This is also the case if the trust is an interest in possession or life interest trust. However, the acquisition of a residential property by, for example, a discretionary trust, will attract the higher rates of SDLT whether or not the trust already holds residential property.
Surprisingly, a minor child’s beneficial ownership of a dwelling under a bare trust will be allocated to its parents (and, if the parents are not married to one another, the spouses or civil partners of those parents).
5. Purchase of multiple dwellings
If an individual purchases two or more dwellings in a single transaction, the entire purchase will either be subject to the higher rates of SDLT or not. There is no mechanism to treat the properties separately. For example, if an individual acquired two flats as part of a single transaction, one to be used as a main residence and the other to be rented, the higher rates would apply to the entire consideration paid. Purchasers of houses that include ‘granny annexes’ may be caught by these rules if, on the facts, the annex is treated as a separate dwelling for SDLT purposes. However, multiple dwellings relief may be available to mitigate the additional cost to a certain extent and the government has indicated that the draft legislation will be amended to mitigate the annex issue. At the time of writing it is not clear what changes will be introduced and how wide they will be drafted. Additionally, investors acquiring six or more residential properties as part of a single transaction can still rely on the existing provisions that allow the taxpayer to treat such purchases as non-residential and pay non-residential rates of SDLT (please see Table 2).
6. Inherited property
Where an individual inherits a 50% or smaller interest in a residential property (taking into account any interest held by a spouse or civil partner in the same property), the interest in that property is ignored for the purposes of the additional 3% SDLT rate for three years from the date on which the individual becomes entitled to the interest in the inherited property.
The content of this article is for general information only. For further information regarding Stamp Duty Land Tax, please contact Karl Pocock. Law covered as at May 2016.
This article is taken from our Agricultural Brief Summer 2016 publication. Similar articles can be found in the latest edition.