Article contributed by ACCA
While the higher rate has implications for a number of groups, new reliefs will soon be available.
Since April 2012, when certain companies, partnerships with company members and collective investment schemes designated as non-natural persons (NNPs) acquire residential property for consideration in excess of £2m they are charged Stamp Duty Land Tax (SDLT) at the higher rate of 15%. The measure was introduced to counter avoidance by individuals who buy residential properties using corporate envelopes and later dispose of the shares in the company, therefore avoiding liability for SDLT.
Under current legislation the only exclusion to the higher rate is for dwellings acquired by property development companies with a track record of more than two years of development activity. Draft legislation in the Finance Bill 2013 introduces a larger spectrum of reliefs from the 15% SDLT rate for genuine property businesses purchasing residential property for over £2m.
The new reliefs will apply to purchases of high-value residential properties where the effective date of the transaction is on or after the date the Finance Bill 2013 receives Royal Assent. Transactions taking place before that date will continue to be subject to the higher SDLT rate, even if the NNP making the purchase would qualify for relief under the new rules.
Under the new rules purchases of residential properties for consideration of more than £2m by qualifying NNPs will be charged SDLT at 7%. NNPs qualifying for the relief will include those that intend to use the dwelling exclusively in the course of a qualifying property rental business, ie one that is carried on on a commercial basis and with a view to the realisation of profits.
Additionally, NNPs that acquire a dwelling with the intention of exploiting it as a source of income in the course of a qualifying trade that is, or that is going to be, carried on will also qualify for the relief. A qualifying trade would be one that involves permitting persons to make use of, stay in or otherwise enjoy the dwelling on a commercial and profit-seeking basis and making the dwelling available to the public for at least 28 days in a year. A dwelling will not be considered to be held with the intention of using it in a rental property business or in a qualifying trade unless steps are taken to that effect as soon as is reasonably practicable.
Property developers will also qualify for the relief but will not be subject to the previous requirement of having been established for at least two years. An NNP property developer will qualify if its trade consists of buying and redeveloping for resale residential and non-residential property, and if the high-value dwelling was bought exclusively for redevelopment and resale in the course of such a trade. The relief will also apply if the dwelling is acquired by a property developer for resale as part of a qualifying exchange.
A property developer will also be able to use the relief if it acquires the dwelling to rent it out on a commercial basis, ie without redeveloping it.
Another category of qualifying NNPs is that of property traders, ie those whose business is that of buying and selling dwellings. Relief for them would be applicable if a high-value property is bought exclusively to be held as stock of the business and for the sole purpose of resale in the course of that business.
Additionally, relief is available if a dwelling is acquired by an NNP who carries on a trade and makes it available to an employee or member of a partnership for use as living accommodation. The employee or member should not be entitled to a share of 5% or more of the income profits of the trade or in the company beneficially entitled to the dwelling. Similarly, farmhouses that are going to be occupied by a farm worker involved in a commercial farming trade will be entitled to relief.
A ‘clawback’ provision is also to be introduced to ensure that if, within three years of the effective date of the transaction, the property is no longer held for a purpose to which the relief was claimed, or is kept for personal or family occupation, additional SDLT will be payable as though the acquisition was taxable at 15%.