From 6th April 2011, following government announcements in the March and June Budgets in 2010, a new 5% top rate of Stamp Duty Land Tax (SDLT) is to apply to residential property transactions with a chargeable consideration of over £1 million.
The former top rate of 4% will continue to apply to residential property where the chargeable consideration is over £500,000, but will rise to the higher rate at £1 million.
It is worth noting that if the land in question does not consist entirely of residential property (ie it is for mixed use or non-residential) then the former top rate of 4% will continue to apply. If the property is used not only as a dwelling then the transaction may be classed as in commercial not residential property.
SDLT RELIEF FOR MULTIPLE RESIDENTIAL PURCHASES
In the 2011 Budget, the government announced that the Finance Bill 2011 will provide relief for buyers of residential property who acquire more than one dwelling from the same seller. The relief will apply to transactions with an effective date on or after the date of Royal Assent of the Finance Bill 2011 (expected to be late Summer/Autumn 2011). The relief operates by fixing the rate of SDLT chargeable on each dwelling by reference to the mean consideration, that is, the aggregate consideration attributable to the dwellings divided by the number of dwellings. Therefore, if B buys three residential properties from S each for a price of £200,000, B will pay SDLT on each property at the rate of 1% instead of 4%. The minimum rate of SDLT will be 1%.
BUDGET 2011 – SDLT AVOIDANCE
In the 2011 Budget, the government announced that the Finance Bill 2011 will contain SDLT anti-avoidance legislation to shut down schemes which rely on (i) the interaction between “sub-sale” relief and the rules relating to alternative finance arrangements (AFAs); (ii) the wide definition of “financial institution” for the purposes of the AFAs rules; and (iii) an artificial reduction in market value when properties are exchanged (on (iii) see further below).
BUDGET 2011 – SDLT AVOIDANCE ON EXCHANGE OF PROPERTIES
Where land is exchanged special rules apply to calculate the consideration for SDLT purposes. Currently, where at least one of the interests exchanged is a freehold or leasehold, the rules deem the consideration for each transaction in the exchange to be the market value of the interest acquired.
As schemes have arisen which seek to use this provision to artificially depress the consideration for SDLT purposes, the legislation is being amended to provide that the consideration for each acquisition will be the higher of market value of the interest acquired and the consideration that would be applicable if the exchanges rules did not apply (that is, the money or money’s worth given by the purchaser, i.e. the market value of the interest sold).
An apparently significant consequence of this is demonstrated by the following example:
A transfers Greenacre (worth £2m) to B, who transfers Blackacre (worth £3m) to A in exchange.
Under the new rules, A pays SDLT on £3 million (because that is the market value of the interest acquired) but B also pays SDLT on £3 million (because that is the market value of the interest sold). Previously, B would only have paid SDLT on £2 million.