Changes to rates of UK SDLT

The Government has today announced changes to the rates of stamp duty land tax (SDLT) applicable to acquisitions of non-residential and mixed-use property. It has also published legislation setting out the scope of the higher rate of SDLT applying to purchasers of more than one residential property. Contrary to the hopes of many large-scale investors in UK residential property, there will be no exemption from the higher rate of SDLT.

Changes to SDLT for residential property were announced in December 2014. The ‘slab’ system was abolished and a banding system similar to that used for income tax was adopted. A similar system has been announced in respect of non-residential and mixed-use property. This will apply from 17 March.

A higher rate of SDLT chargeable on the net present value (NPV) of the rent payable on newly-granted leases of non-residential property has also been introduced; it applies where the NPV exceeds £5 million.

Subject to the transitional provisions discussed below, purchasers of non-residential property will be subject to SDLT at the new rates with effect from 17 March 2016.

The new rates for freehold purchases and lease premiums in relation to non-residential property are set out in the table below; SDLT is charged at each rate on the portion of the purchase price or lease premium falling within these bands:

For the grant of new non-residential leases, the amount of SDLT payable has increased where the NPV of the rent is above £5 million.  SDLT is charged on the NPV as follows:

As a transitional provision, those who have:

• substantially performed a contract prior to 17 March 2016, or who have
• exchanged contracts other than in relation to an ‘excluded’ transaction (as to which see below) prior to 17 March 2016,

will, upon making an election (as part of the SDLT return for the transaction) have the choice of whether to be taxed under the old or the new regime. This will be both in relation to the grant of new leases and the conveyance of existing freehold or leasehold interests: There will be requirements for this to apply.

An ‘excluded’ transaction is one where:

• the contract is varied or the rights under it are assigned on or after 17 March 2016;
• the transaction is carried out on or after 17 March 2016 in consequence of any option, right of pre-emption or similar right; or
• on or after 17 March 2016, the transaction involves an assignment, a sub-sale, or any other transaction (in relation to all or part of the subject-matter of the transaction) whereby anyone other than the purchaser under the contract becomes entitled to call for a conveyance.

Those intending to make an election to be taxed under the old regime should pay very careful attention to these anti-avoidance provisions in relation to ‘excluded contracts’.

With effect from 1 April 2016, purchasers of ‘additional’ UK residential property will incur an additional 3 per cent SDLT charge when they buy UK residential property. There is no exemption from this charge (although the new higher rate will not apply to some individuals who replace their main residence).

The charge applies to acquisitions of more than one ‘dwelling’, and only applies to transactions that are entirely residential. Each case will need to be carefully considered on its own facts, to determine whether it is a ‘residential’, ‘non-residential’ or ‘mixed use’ transaction.

While multiple dwellings relief will continue to be available, SDLT will be charged at the higher rates on the average price of the dwellings – i.e. an additional 3 per cent will be charged, so the benefit of multiple dwellings relief is effectively removed for properties with an average price of a little over £125,000.

The new higher rate of SDLT will be 3 per cent on top of the previous SDLT rate, charged on the banding basis, which gives:

Where six or more residential properties are bought at the same time, this will still be regarded as a commercial, and not a residential, transaction. Accordingly, the commercial rates of SDLT will continue to apply (now 5 per cent on that portion of the total purchase price above £250,000).

Until today, changes to SDLT rates had generally been targeted at enveloped properties and the residential market. The alterations to the commercial property SDLT regime set out in today’s Budget mark a sea change in the Government’s attitude towards commercial property. It sits alongside other changes designed to tax offshore developers of UK land, which have been announced in the Budget.