Our private capital experts provide a summary of rates for Stamp Duty Land Tax on residential property and the Annual Tax on Enveloped Dwellings.
Brief summary of SDLT residential rates with effect from 4 December 2014
The United Kingdom (UK) Chancellor of the Exchequer announced at the Autumn Statement on 3 December 2014 that Stamp Duty Land Tax (SDLT) was being reformed for purchases of residential property with effect from 4 December 2014.
A purchaser who exchanged contracts before midnight on 3 December 2014 could choose whether the new or old SDLT rules and rates should apply.
Under the new rules, rather than pay tax at a single rate on the entire purchase price, a purchaser of UK residential property pays the rate applicable to the part of the price within the relevant band.
The rates are, as follows:
- £0 to £125,000 - 0%
- £125,001 to £250,000 - 2%
- £250,001 to £925,000 - 5%
- £925,001 to £1,500,000 - 10%
- £1,500,001 and over - 12%
For lower value properties, the new rates give rise to a lower SDLT charge than would have been the case under the applicable rates prior to December 2014.
For a higher value property, however, the SDLT charge may be significantly greater than would have been the case under the old rates. The tipping point occurs at approximately £937,500.
For a property purchased for £10 million, for example, SDLT would be £1,113,750 under the current rates, whereas it would have been £700,000 at the old rate of 7% for properties valued over £2 million.
SDLT for residential property purchased by a company or other non-natural person
For residential property costing over £500,000 acquired for private use through a company or other relevant non-natural person (such as a collective investment scheme or partnership with at least one corporate partner), higher rate SDLT at 15% continues to apply.
However, if an appropriate relief applies, for example, if the residential property is used for a property rental or development business, the new residential rates will apply instead.
Brief summary of ATED rates with effect from 1 April 2015
The Annual Tax on Enveloped Dwellings (ATED) was introduced in April 2013 as part of a package of measures, which included higher rate SDLT and the ATED-related CGT charge) to tackle perceived tax avoidance through the use of corporate vehicles to hold UK residential property.
A number of significant changes have been made to the regime since it was introduced affecting the values of properties it applies to and the rates charged. These are, as follows:
- For the chargeable period from 1 April 2015 to 31 March 2016, the ATED charge on properties worth over £2 million held through such vehicles increased by 50% above inflation.
- A new ATED band for properties valued over £1 million and up to £2 million has also been introduced with effect from 1 April 2015.
- An additional band for properties valued over £500,000 and up to £1 million will come into effect from 1 April 2016.
The ATED rate increases and rates for the new bands are, as follows:
- Property valued over £500,000 and up to £1m: currently £0, will be £3,500 from 1 April 2016;
- Property valued over £1m and up to £2m: previously £0, is £7,000 from 1 April 2015;
- Property valued over £2m and up to £5m: previously £15,400, increased to £23,350 from 1 April 2015;
- Property valued over £5m and up to £10m: previously £35,900, increased to £54,450 from 1 April 2015;
- Property valued over £10 million and up to £20m: previously £71,850, increased to £109,050 from 1 April 2015; and
- Property valued in excess of £20m: previously £143,750, increased to £218,200 from 1 April 2015.
Clearly, these are significant increases, particularly given that this is an annual, rather than one-off, charge.
For more information about this subject please contact the Private Capital team.