Written by Huw Witty
On 28 December 2015 HMRC issued a consultation document concerning the 3% extra stamp duty payable on “additional residential properties”, announced in the Autumn Statement and Spending Review, which has provided some guidance as to how the new rules may operate.
When will the new charges start to apply?
The extra rate will apply to additional properties acquired after 1 April 2016 save where a contract to acquire the property was exchanged before 26 November 2015 or to put it another way the new charge will only apply to property acquired after 1 April 2016 pursuant to a contract made after 25 November 2015. Hence, there is likely to be a rush to complete current deals before 1 April this year.
A word of caution, it is likely that the exemption for property acquired pursuant to a pre-26 November 2015 contract will not apply if that contract has been transferred between buyers after 25 November 2015.
For individuals the charge will normally only apply to buyers owning another property at the date of the chargeable property purchase.
For companies the extra rate will catch all property purchases by a company even if they do not own any other property, for anti-avoidance reasons.
It is not clear what ownership will mean for these purposes; obviously freeholds will be caught as presumably will long leaseholds but at what point will a person be regarded as merely a tenant rather than an owner?
This may be an important issue in determining the SDLT liability of a purchaser resident in a country in which it is common to rent rather than own property.
Also, HMRC have acknowledged that the new rules will provide an incentive for parents to lend their children the money to buy a property rather than purchase a property for the children to live in.
There is an exemption from the charge where the property being purchased is replacing the buyer’s existing main residence. Owning a buy to let property will not result in an increased SDLT charge for a buyer who has sold his old residence on or up to 18 months before he buys the new residence or sells their old residence within 18 months following the purchase of the new residence.
In the latter case the buyer will have to account for the extra SDLT on the acquisition of the new residence but will be entitled to a refund when the old property is sold.
Reliefs and penalties
Multiple dwellings relief may be available for the acquisition of 6 or more residential properties and the government is considering a substantial investment relief to enable portfolio sales to fall outside the charge.
One seemingly harsh feature of the regime is that a penalty of up to 100% of SDLT lost by a careless mistake may be payable. Neither clients nor their advisers should take these new provisions lightly.
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