Load, Aim, Misfire! A look at the practical implications of the additional 3% SDLT rate
By Alex Barnes, Memery Crystal LLP
It’s almost a year now since the Government in the UK introduced the additional 3% Stamp Duty Land Tax (SDLT) rate on certain purchases of dwellings. This was no doubt done partially to raise revenue, but in the main was probably to appeal to voters by once again targeting those ‘nasty wealthy landlords’. As is often the case with new or additional taxes, this tax hike is prone to misfire and in many cases it’s not those that the Government was probably seeking to target who actually bear the brunt of the change.
In summary, the additional 3% rate applies to those individuals who, already owning their own home, spend GBP 40,000 or more on a new home which does not replace their current main residence and which is not subject to a lease with an unexpired term of more than 21 years. Companies acquiring residential property are also caught by this additional tax if the property acquired costs GBP 40,000 or more and is not subject to a lease as referred to above.
There are no exceptions to the additional 3% rate which is particularly harsh when compared with, say, the 15% SDLT rate applicable to ‘non-natural persons’ acquiring residential property. Those persons can avoid the 15% rate in a number of circumstances for example, when acquiring property to let or to redevelop and sell on or, just to sell on. This has been raised with HM Revenue & Customs (HMRC) but has fallen on deaf ears.
For those caught by the extra 3% charge, it is possible in certain circumstances to claim a refund of the additional tax. For example, those unable to sell their current home at the time of the purchase of their new home can, having paid the extra 3% upfront, reclaim this if they sell their old home within three years of the purchase of the new home. For those caught with two residences because they cannot sell their current home, the extra SDLT will be a nasty shock to their already stretched budgets. Don’t waste your time appealing to HMRC for any charity, they don’t care why you can’t sell your old property, just that you haven’t done so.
Those subject to this extra tax are often not who you would expect to be caught by it, as the following illustrates. Married couples and civil partners are essentially treated as one person, which can give rise to unexpected extra SDLT. For example, if one of the couple own their main home (which will be kept), a purchase of another dwelling by the other of them, e.g. a flat to live in the week if working away from home, would be subject to additional SDLT.
For parents looking to help their children get on the property ladder, for example, by agreeing to fund a deposit for their child’s home, if the parents obtain an interest in the child’s property whilst owning their own home, then, regardless of the size of the interest held by the parents, additional SDLT will be payable on the purchase of a new property.
For those that own their own home by way of a leasehold interest (which is particularly prevalent in London) and own a separate buy to let property, any sums paid to extent the lease of the home lived in could be subject to the extra 3%, as HMRC do not consider the homeowner to be replacing their main residence in these circumstances.
This additional tax will, I suspect, also inadvertently hit the supply of housing. I know of some small developers that have previously acquired run down and dilapidated properties, renovated them and put them back into circulation in the property market who have, since the introduction of the additional SDLT, scaled back or stopped their activities, with the result that many homes continue to lie unoccupied and unwanted by wouldbe occupants put off by the run down state they are in. With such a shortage in housing you would have thought the Government may have introduced some exceptions similar to those for the 15% rate, to ensure that those in the property redevelopment business are not caught by this additional tax. I’m aware of this being raised with one local MP who, having seemingly discussed this with the Treasury, confirmed that this extra SDLT charge was intended to apply to developers.
For those acquiring additional properties to let, the extra SDLT costs will in many cases no doubt be passed onto tenants together with all the other extra costs landlords have had to incur and will continue to incur as the Government erodes the tax reliefs available to them. For those that can’t afford to buy their own properties, renting will soon start to become just as unaffordable.
For many acquiring additional properties this is not done because they have so much money they simply don’t know where to put it; rather, it’s done as part of their retirement planning and sometimes instead of putting money into a pension. With pensions having been attacked by successive governments and interest rates on the floor, property was seen as one of the few areas you could put your money in and hope for a reasonable return. Unfortunately, in the current economic climate the only thing that seems to go up is tax.
Alex BarnesMemery Crystal LLP, London, United Kingdom
T: +44 207 400 5794
Alex Barnes advises on the tax implications of a wide range of real estate transactions for occupiers, investors and developers (both UK and offshore), and is a regular contributor to publications including Estates Gazette and Property Week.
Memery Crystal is a market leading firm with a strong reputation as a commercial legal practice. Main practice areas include corporate, banking/debt finance, dispute resolution, employment, real estate and tax. The firm has particular in a number of industry sectors, including finance, natural resources, financial services, property, media and technology.
Published: November 2017 l Photo: andi26 - Fotolia.com