Ed Colreavy
Partner
Article
5
Our private capital experts provide a summary of rates for Stamp Duty Land Tax on residential property and the Annual Tax on Enveloped Dwellings.
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:
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.
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.
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:
The ATED rate increases and rates for the new bands are, as follows:
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.
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