In his Autumn Statement today, the UK Chancellor announced an increase in the rate of stamp duty land tax (SDLT) that will be paid from 1 April 2016 on purchases of additional residential properties valued over £40,000, such as buy to let properties and second homes.
Purchasers of such properties will pay an additional 3% SDLT above the rates they would have paid under the existing rules. With the current top rate of SDLT for individuals acquiring UK residential property at 12%, this will result in purchasers paying rates of up to 15% on affected properties when the new rules take effect.
The government intends to consult on the policy detail, including a possible exemption for corporates and funds owning more than 15 residential properties. However, it seems that companies that will not fall within this proposed exemption and that would normally be caught by the higher rate SDLT (15%) in relation to a purchase of a higher value UK residential property (currently, one valued over £500,000), may also be caught by the new additional 3% SDLT charge, resulting in a total SDLT rate of 18% on such an acquisition. This would be the case unless such properties do not qualify as "second homes" or "buy to let" properties within the terms of the new rules.
If such companies fall within the existing higher rate SDLT exemption for property purchased for use within a "qualifying property rental business" (which will not necessarily apply to all properties bought to let), they will avoid the 15% rate of SDLT but still pay the additional 3% on top of standard residential SDLT rates in the same way as would an individual or a company acquiring property with a value of £500,000 or less.
It remains to be seen how the rules will apply in terms of determining (and evidencing) what is and is not a "second home" in situations where such a property is not bought to let, whether a purchaser is resident abroad or otherwise. In whatever way the rules apply, it is likely that they will result in a significant additional acquisition cost for many wealthy foreign and UK individuals purchasing UK residential property on or after 1 April 2016.
This, of course, comes on top of a number of significant recent and forthcoming changes to the taxation of UK residential property, particularly for foreign and non-UK domiciled purchasers. As such, anyone planning to invest in UK residential property should consider taking advice at an early opportunity.
SDLT filing and payment
Currently, purchasers have a window of 30 days following acquisition of a property to file and pay SDLT due. It was announced today that the government will consult in 2016 on changes including a possible reduction in this period from 30 to 14 days, with a view to such changes coming into effect in 2017 to 2018.
CGT payment window
The Chancellor also announced today that, from April 2019, a payment on account of any capital gains tax (CGT) due on the disposal of UK residential property will need to be made within 30 days of the completion of the disposal (although this will not affect gains on properties which are not liable for CGT due to Principal Private Residence Relief). The proposal mirrors rules already in place for non-residents disposing of UK residential property that already have to file and, in certain circumstances, pay any CGT due within 30 days of a disposal. The government intends to publish draft legislation for consultation in 2016.