With the new higher rates of SDLT of 3% above current SDLT rates now in force from 1 April 2016, we highlight ten key points in relation to these new rates.
- Broadly, the higher SDLT rates apply where a purchaser of UK residential property worth more than £40,000 owns more than one residential property (whether in the UK or abroad) at the end of the day of the purchase, regardless of the intended use of that property.
- All purchases of additional residential property located in England, Wales or Northern Ireland (but not Scotland which has its own Land and Buildings Transaction Tax) which complete after 1 April 2016 are subject to the higher rates.
- The higher rates are payable unless the purchase is to replace a main residence, provided the previous main residence has been sold. If the new main residence is bought before the old one has been sold, a refund can be claimed for the additional SDLT paid, provided the former main residence is sold within three years (36 months) of the new one being bought (under the Government’s original proposal the period was 18 months). Whether a property is a main residence is a question of fact.
- Married couples and civil partners who live together (and their minor children) are treated as one unit (i.e. their interests are amalgamated) under the new rule; so that each couple may only own one main residence between them. If either partner owns a residential property already, the couple will be subject to the high rates on any subsequent purchase; unless it replaces their main residence or does so within three years. Married couples and civil partners will be treated as living together unless they are separated under a formal court order or other deed. Separated married couples and civil partners and un-married couples can therefore own a residential property each without being subject to the higher rates.
- The interests of joint purchasers and partners in a partnership are amalgamated so that if any of the joint purchasers already owns a property, and the transaction is not to replace a main residence, the higher rates will apply to the entire purchase price.
- Properties purchased by parents for children to live in will be subject to the higher rates depending on the structure of the arrangement and who owns the property.
- Certain trusts and their beneficiaries are affected by the new rules depending on the nature of the trust and the interest of the beneficiaries:
- Purchases of properties by trustees where beneficiaries have no life interest or interest in possession (IIP) in the property (i.e. discretionary beneficiaries or beneficiaries with remainder interests in trust funds) are liable to the higher rates.
- Beneficiaries of trusts where beneficiaries enjoy an IIP in a residential property will be treated as owning an interest in the residential property. Consequently, if on the purchase of a property by the trust an IIP beneficiary already owns a property, the trust will be subject to the higher rates; and equally if an IIP beneficiary subsequently purchases their own property, the beneficiary will be subject to the higher rates.
- The purchase of a residential property by companies (and collective investment vehicles and other non-natural persons) are subject to the higher rates unless the entity is subject to the 15% SDLT rate (i.e. the company will be subject to the Annual Tax on Enveloped Dwellings following the purchase of the property).
- The Government had originally contemplated an exemption from the higher rates for the ‘bulk purchase’ (i.e. the purchase of at least 15 properties at the same time) by corporates and funds, and an exclusion for certain collective investment schemes and non-natural persons. However no exemptions or exclusion have been carried forward into the new rules.
- If an individual has an interest in a residential property held through a UK company or a non-UK company (subject to the law of the relevant jurisdiction) they do not have an interest which will be counted when determining whether the individual is purchasing additional residential property under the new rules. This appears to be the case even if the individual owns all the shares in the company.
Originally published on https://www.bdb-law.co.uk.