Changes in Stamp Duty Land Tax, commercial and residential property – where are we now?

Residential Property

Background

At the Spending Review and Autumn Statement 2015 the Chancellor announced that from April 2016 higher rates of Stamp Duty Land Tax (SDLT) would apply to buyers already owning properties. The purpose of the higher rates was part of the government’s aim to support first time buyers. A consultation was open between 28 December 2015 and 1 February 2016. The initial consultation implied that individual investors and companies buying more than 15 properties could benefit from stamp duty relief. However the Chancellor has now back tracked on this proposal.  Any owner of additional residential property (irrespective of whether it is an individual or company) will be affected by the increased charges.

Changes

From April 2016 an extra 3% SDLT will be paid on the purchase of additional residential property over £40,000, irrespective of the intended use of the property. The higher rates will affect both domestic and foreign purchasers buying a second property that is not their main residence. These changes affect anyone owning a second property or replacing a property that is not their main residence.

Impact

Some strategies that buyers may have considered to manage these changes, in terms of splitting ownership of assets, will not work as married couples/civil partners will be treated as one unit. However married couples that are living apart permanently and  separated but not divorced will be exempt from the additional charges.

Buyers may apply for a stamp duty refund if they sell their old property within 36 months from 25 November 2015. The stamp duty refund will assist owners selling their main residence and simultaneously buying a new one.  If owners have more than one property and dispose of their main residence they have 36 months within which to buy a new property before the additional stamp duty is charged.

Key Dates for Exchange and Completion

The higher SDLT will apply to purchases of buy to let and second homes with a completion date from 1 April 2016. However contracts exchanged before 26 November 2015 but completed after 1 April 2016 will not be affected by the higher rates.

Commercial Property

Higher SDLT Rates

Changes have been made to SDLT rates on freehold commercial property and leasehold premium transactions by the introduction of a slice-based approach. From 17 March 2016, SDLT shall be payable on the portion of the transaction value which falls within each tax band.

Commercial Property Leases

Leasehold transactions are affected by a new 2 % rate for rent paid under a non-residential lease where the net present value (NPV) of the rent is over £5m.

£1,000 Rule

Prior 17 March 2016, if the rent on a lease was more than £1,000, purchasers were unable to benefit from the 0% threshold on any premium paid for the grant of the lease. However, from 17 March 2016 if the relevant rent (not the NPV) is over £1,000 purchasers can benefit from the 0% threshold for both the premium and rental elements of a leasehold transaction.

Timing

The changes to non residential properties apply to purchases or leases that are completed on or after 17 March 2016.  There are also transitional rules that apply to contracts that are exchanged before midnight 16 March 2016 but not completed until on or after 17 March 2016 – they can choose whether to use the old or new rules (provided no variation or assignment of contract takes place prior to completion).

For more information please contact our residential or commercial property team.