Budget 2016 – Summary of SDLT changes

Rates of SDLT – non-residential and mixed use property

The rates of SDLT on non-residential and mixed use property have changed for land transactions with an effective date after 16 March 2016.  Instead of the previous ‘slab’ system, the rates of SDLT for non-residential or mixed transactions will follow a progressive or ‘slice’ system (as has been the case with residential property since 4 December 2014) but with different rates and bands. The bands and rates for freehold purchases and lease premiums are now:

Slice (pre 16 March 2016 slab)New rateOld rate
Over £250,0005%3% - £250,001 to £500,000;
4% over £500,000

A new 2% rate applies to leasehold transactions where the net present value (‘NPV’) of the rent is above £5 million. Rent with an NPV of £150,001 to £5 million will continue to be charged at 1%.  Where six or more dwellings are purchased in a single transaction the purchaser can choose whether to apply the residential or non-residential rates.

Purchasers can elect to apply the old rates for contracts which have been exchanged but not completed before 17 March 2016.  The election which is to be made in the land transaction return will not be advantageous for purchasers at the lower end of the scale as is illustrated below.


P enters into a contract on 16 March 2016 to buy 63 acres of farmland for £375,000 and completes the purchase on 30 March.  Using the pre-Budget rates the SDLT payable would be £11,250.  Using the new rates the SDLT due would be £8,250 therefore P should not elect for the old rules.

Additional residential properties – introduction of higher rates

The charge

With effect from 1 April 2016 there will be a 3% SDLT surcharge on:

(1)  the acquisition by an individual of a ‘qualifying interest’ in an ‘additional dwelling’; and

(2)  the acquisition by any other person of a ‘qualifying  interest’ in a ‘dwelling’ (even if it is the first or only dwelling owned by that purchaser);

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.

Where there is an acquisition of more than one dwelling as part of a single transaction special rules apply to determine whether the higher rates apply.

A ‘qualifying interest’ is:

(1)  a freehold interest; or

(2)  a leasehold interest granted for a term of more than seven years

which is not subject to a lease with an unexpired term of more than 21 years.

‘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.

A ‘dwelling’ is a building or part of a building that is used, or is suitable for use as a dwelling or is in the process of being adapted for such use.  Land that is, or is to be, occupied or enjoyed with the dwelling as a garden or grounds is included.  Off-plan purchases and purchases of furnished holiday lets are caught.

A dwelling is an ‘additional dwelling’ where the individual purchaser owns a ‘qualifying interest’ in it with a market value of £40,000 or more and he already owns a ‘qualifying interest’ in another dwelling.

All the tests are applied on the ‘effective date’ of the acquisition.  The ‘effective date’ of a transaction is determined in accordance with section 44 FA 2003 and is normally the date that the land transaction is completed.

Joint purchasers (including certain trustees) are subject to the charge where at least one of them is caught.

There are transitional provisions for contracts entered into before 26 November 2015 which complete after 31 March 2016.

In spite of an HMRC statement 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.’

there is no exemption for significant investors.


Where a beneficiary is entitled to occupy the dwelling for life or is entitled to the income earned in respect of the dwelling he will be treated as the purchaser for the purposes of the higher rates charge.

Where there is a bare trust it is the beneficiary who is treated as the purchaser for the purposes of the higher rates charge.


The higher rates apply with modifications to acquisitions by partnerships.

Replacement of main residence

There are two reliefs where an individual replaces his only or main residence.  There is no definition of ‘only or main residence’ for the purposes of the higher rates charge.

The first cover cases where an individual owns buy-to-let properties and replaces one house he lives in with another.  Relief applies where a dwelling which, at some time in the three-year period ending with the effective date of the acquisition of the additional dwelling, has been his only or main residence has been disposed of by the individual, or his spouse or civil partner within that period.  The additional dwelling acquired must be intended to be occupied as the individual’s only or main residence.  In this case the higher rates do not apply to the acquisition of the additional dwelling.  Where the effective date of the purchase of a new dwelling is on or before 26 November 2018 the three-year period does not apply.  This is to give additional time to those who had sold their home before the announcement of the introduction of the higher rates on 25 November 2015 but did not replace it before 1 April 2016.

The second relief applies where a purchaser is liable for the higher rates because he has not sold his main residence before he buys a replacement.  In this case, the purchaser can claim a refund of the higher rate SDLT where he sells his previous main residence within three years of acquiring his new home.  The refund is claimed by amending the land transaction return.

Married couples and civil partners

Married couples and civil partners are entitled to only one sole or main residence between them for the purposes of the SDLT higher rates on additional residential properties.

Married couples or civil partners who are separated will, in certain circumstances, not be treated as one unit.

Small inheritances

Where a share of 50% or less of a freehold or of leasehold interest which exceeded seven years at the date of grant in a dwelling has been inherited within the three years ending with the purchase of a second residential property and that interest does not increase during the period the higher rates will not apply to the purchase.

Multiple Dwellings Relief (‘MDR’)

MDR continues to apply after the introduction of higher rates of SDLT on the acquisition of additional dwellings.  MDR is considered in more detail here.

Example of MDR after 31 March 2016

A is buying the freehold interest in a farmhouse and cottage on the same Land Registry title from a third party for £915,000.  Vacant possession will be given on completion.  A, who sold his previous home in August 2015, has no interest in any other dwelling and intends to live in the farmhouse.  The cottage is ‘suitable for use as a dwelling’ as it has a living room, bedroom, kitchenette and bathroom and separate services from the farmhouse.  The cottage is therefore a dwelling for the purposes of new Schedule 4ZA FA 2003 (paragraph 17) and also for the purposes of MDR.  In the past the cottage has been used as overspill accommodation for the farmhouse.

The open market value of the cottage is £45,000 therefore the transaction is a multiple dwellings transaction for the purposes of new Schedule 4ZA FA 2003 (paragraph 5).

The total consideration is £915,000 for two dwellings therefore SDLT is calculated as follows:

£915,000 ÷2 =£457,500


£457,500 taxed at the residential rates in section 55 FA 2003 Table A (as modified by section 55 (4A)) = £26,600


£457,500 taxed at the higher rates for additional dwellings (the rates in Table A as modified by section 55 (4A)) = £26,600

Therefore after 31 March 2016 the SDLT on the transaction is £53,200.


15% SDLT rate – new reliefs

The reliefs from the 15% rate of SDLT (which applies where high-value residential property is acquired by non-natural persons) are extended to equity release schemes, property development activities and properties occupied by employees from 1 April 2016. Some minor changes have been made to the draft legislation published on 9 December 2015.

Authorised property funds – seeding relief

The Finance Act 2016 will introduce a seeding relief for PAIFs and co-ownership authorised contractual schemes (‘CoACSs’) and will change the SDLT treatment of CoACSs investing in property so that SDLT does not arise on transactions in units. Some minor changes have been made to the draft legislation published on 9 December 2015.