In his Autumn Statement, the Chancellor announced a Five Point Plan for the residential property market. One of the headline points was a 3% surcharge on stamp duty land tax (SDLT) rates to apply to the acquisition of “additional” residential properties. This tax increase will take effect for completions on or after 1 April 2016.
The main points
The changes will affect all acquisitions of residential properties by companies, with an exemption for “large scale investors”. The exemption is expected to take effect where 15 or more residential properties are involved. It is not yet clear whether the exemption will be linked to the size of the entity’s existing portfolio or the number of properties being acquired in a single transaction.
Current reliefs such as charity relief, the exemption for Registered Providers, group relief and multiple dwellings relief should still apply (though the latter is likely to be based on the new surcharge rates of at least 3% rather than the present 1% de-minimis).
The SDLT surcharge will apply to purchases of additional residential properties such as buy-to-let properties and second homes. The Government is proposing that the new SDLT rates for these purchases will be 3% higher than those on first property purchases. The existing and new rates will be as follows:
|Purchase price||Existing SDLT rates||New additional property SDLT rates|
|£0 - £125,000||0%||3%*|
|£125,000 - £250,000||2%||5%|
|£250,000 - £925,000||5%||8%|
|£925,000 - £1,500,000||10%||13%|
*Only applies to acquisitions over £40,000
These new rates will be levied on relevant purchases completed on or after 1 April 2016. The existing rates will apply if the contracts were exchanged on or before 25 November 2015.
Impact on companies
It is proposed that the additional SDLT rates will apply to all purchases of residential property by a company or investment vehicle. There will be no exception for the first acquisition by a company (individuals will qualify for a first-purchase exemption).
There will be no additional charge on the purchase of a non-residential property. This includes property with both residential and non-residential elements which is considered mixed-use and which is subject to non-residential rates.
Proposed housing supply relief
The Government is expected to introduce an exemption to the surcharge rate where the purchase of additional properties significantly contributes to new housing supply and the Government’s wider housing objectives. This exemption is likely to be for either:
The Autumn Statement indicated that this exemption would only apply to corporates and funds. However the consultation is considering whether the exemption should be extended to individuals.
Whilst the stated policy relates to increasing the housing supply, there is no mention of a relief for property developers acquiring to redevelop and sell.
It is expected that current SDLT reliefs will still apply where the relevant conditions are met. For example, charities acquiring for charitable purposes and Registered Providers using public subsidies or buying from local authorities should still get full relief from the SDLT charge. However, reliefs such as charities relief and group relief are subject to clawback provisions if disqualifying events take place within a three-year period. If the “large scale investor” exemption is not available, the surcharge is likely to apply to the clawback.
Multiple dwellings relief will still be available. But although there is currently a 1% de-minimis rate, if the purchase falls within the surcharge regime the practical minimum rate would be 3% since the 3% surcharge applies to purchases exceeding £40,000.
The HMRC consultation on the changes closed on 1 February. KPMG submitted comments as part of the consultation process and will provide updates after the final policy is confirmed in the Budget on 16 March 2016.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.