Stamp Duty Land Tax
‘The last two weeks of March are an anxious time for the spaghetti farmer. There is always the chance of a late frost which, while not entirely ruining the crop, generally impairs the flavour and makes it difficult for him to obtain top prices in world markets.’ (‘The Swiss Spaghetti Harvest,’ BBC Panorama, 1 April 1957)
The snappily-titled ‘higher rates of Stamp Duty Land Tax (SDLT) on purchases of additional residential properties where the consideration is over £40,000’ come in on 1 April and it seems that a lot of people are going to be caught. According to The Guardian, conveyancers have been working over the Easter weekend ‘to help buyers beat the stamp duty deadline’. Well, it’s one alternative to an Easter egg hunt in the driving rain, I suppose.
The Chancellor dropped his SDLT cluster-bomb on the unsuspecting residential property sector on 25 November 2015. In the Autumn Statement a somewhat grumbly George said:
‘Frankly, people buying a home to let should not be squeezing out families who can’t afford a home to buy. So I am introducing new rates of stamp duty that will be 3 per cent higher on the purchase of additional properties like buy-to-lets and second homes.
It will be introduced from April next year and we’ll consult on the details so that corporate property development isn’t affected.’
Apart from stating the blindingly obvious (that caravans, mobile homes and houseboats wouldn’t be caught), and that the charge would not apply where the residential property was being acquired for less than £40,000, the accompanying HMRC Press Release was similarly short on detail.
I and my fellow SDLT-wonks had to wait until a consultation document was issued on 28 December for something to chew on and even then there were more questions than answers. More information dribbled out when the Treasury published a summary of the consultation responses in March 2016.
The necessary legislation will be in the Finance Act 2016 which will receive Royal Assent towards the end of July. ‘So,’ I hear you cry, ‘how can the changes apply in the period from 1 April to the date the Act reaches the statute book?’ Well, this is how.
The Provisional Collection of Taxes Act 1968 enables provisional validity to be given to specified budget resolutions made by the House of Commons immediately after the Budget speech. Resolutions agreed to in March in any year remain valid until the following 5 August provided that, within the next 30 days on which the House sits, amongst certain other things, a Finance Bill containing the provision is read a second time.
Budget Resolution 46 ‘Stamp duty land tax (Higher rate for additional dwellings etc.)’ made on 22 March amended the Finance Act 2003 to give effect to the higher rates from 1 April 2016. The resolution contained a declaration that it is ‘it is expedient in the public interest that this Resolution should have statutory effect under the provisions of the Provisional Collection of Taxes Act 1968’ so that should tide greedy Georgie over.
In brief, the measures included in Budget Resolution 46 (now in clause 117 of the Finance Bill) provide for a 3% SDLT surcharge on:
- the acquisition by an individual of an interest in an additional dwelling; and
- the acquisition by any other person of an interest in a dwelling (even if it is the first or only dwelling owned);
where the chargeable consideration is £40,000 or more. The reason for the £40,000 threshold is that below this figure an SDLT return does not have to be filed.
‘Dwelling’ includes a dwelling outside England, Wales and Northern Ireland. The charge applies in Wales until 1 April 2018 (when SDLT will be devolved) but not in Scotland.
Acquisitions by trustees and joint purchases are caught although, of course, there are exceptions.
In spite of an HMRC statement back in November 2015 that the surcharge would not apply to:
‘corporates or funds making significant investments in residential property given the role of this investment in supporting the government’s housing agenda.’
an exemption for significant investors was not included. Relief is given where a second dwelling is acquired by an individual as a replacement for an existing home within a three year period.
Transitional provisions apply to contracts entered into before 26 November 2015 and completed after 31 March 2016.
As an Easter bonus for those of you who are into fiscal flagellation, here’s an extract from the draft third edition of my SDLT book which deals with multiple dwellings relief and the interaction of MDR with the new higher rates. MDR is a bit of a hot topic if my postbag is anything to go by so you might find it a Good Read (once you’ve finished flicking through the Argos catalogue).
The OBR commenting on the forecast tax yield from George’s proposals (£3.8 billion over five years) gave it a ‘high uncertainty rating’. As the OBR pointed out:
‘the measure requires purchasers to declare that the dwelling they are acquiring will not be their primary residence – i.e. effectively to opt in to the higher SDLT charge.’
HMRC’s view is that ‘lawyers and conveyancers are expected to incur negligible one-off costs due to familiarising themselves with the new structure of SDLT’. Anyone who has looked at the ten pages of amendments to the Finance Act 2003 needed to bring in the changes will find this statement either laughable or tendentious.
It seems that our precocious Chancellor changed his first name from Gideon to George by deed poll at the age of 14. Gideon comes from the Hebrew verb ‘gada’ which means ‘to hew down or cut off.’ George comes from the Greek ‘georgios’ meaning ‘farmer’ or ‘earthworker.’
Has Giddy the Destroyer succeeded in reinventing himself as someone a little more pastoral?
You decide. Me, I’m still trying to get to grips with the draft legislation and there’s only a day to go (unless, of course, it really is an April Fool’s Day prank).
Tax lawyer specialising in business tax, SDLT and VAT