The 2015 Autumn Statement continues the trend of the last few years: more tinkering with the UK’s property tax regime.
Under the microscope, not for the first time, are buy-to-let investors and those with second homes. Two changes will affect them:
1) Higher SDLT rates
From April 2016, an additional rate of stamp duty land tax (SDLT) of 3% will apply to purchases of buy-to-let properties and second homes (with the extra 3% added to the current SDLT rates). The government will consult on whether companies/funds making “significant investments” in residential property should be exempted.
The policy behind the change looks like an attempt to keep a lid on escalation of house prices in London by increasing transaction costs for buy-to-let investors. However, this could backfire as the top rate for individuals is already 12% and is widely thought to have caused a slowdown in higher value residential transactions. Even higher SDLT could impact the top of the residential market further, and also reduce the amount of social housing new developments usually provide as a by-product.
It is unclear how the additional charge will interact with the relief that applies to portfolio purchases. Equally, by declaring that the additional rate applies, a purchaser will flag to HMRC that they are buying a property on which they will eventually pay capital gains tax (CGT). Buying residential and commercial property together (mixed use sites) is subject to a rate of only 4%. This appears to be even more attractive where circumstances permit.
2) CGT on second homes
For capital gains made from April 2019 onwards, it is proposed that CGT is paid within 30 days of sale. This is a step change - currently CGT is paid by 31 January following the tax year of disposal (so, at worst, 10 months later).
The government says this is to align payment of CGT with payment of income tax under PAYE. This is curious as there are no proposals to accelerate payment of CGT for other assets. However, it will mean UK residents pay CGT on residential property at the same time as non-residents.
It is not clear whether the change will also apply to UK companies, but the expectation must be that it will. Clearly this will not affect individuals who can claim “principal private residence relief” on their main home.
More reliefs, but less time to pay?
Elsewhere, there is better news. First, the long-awaited “seeding relief” for Property Authorised Investment Funds and Co-ownership Authorised Contractual Schemes will be introduced - probably in summer 2016. There will be an 18-month seeding period and a 3-year clawback mechanism. A minimum portfolio value - starting at £100m and with at least 10 commercial properties or 100 residential properties - will also apply.
In addition, reliefs from both the annual tax on enveloped dwellings (ATED) and the SDLT flat rate of 15% (which applies to corporate purchasers acquiring residential property) will be introduced from April 2016. Equity release schemes, property development activities and properties occupied by employees will qualify. Details are expected in the draft Finance Bill due in December, which should clarify the scope of the reliefs (e.g. whether employees of group companies will qualify).
Finally, property lawyers beware - the government intends to consult on shortening the SDLT filing and payment window. From 2017-18, it is proposed SDLT should be paid within 14 days (currently it is 30 days). This would presumably also apply to applications to defer SDLT on uncertain/contingent purchase price.
James Graham-Brown and Richard Woolich are from the tax team at DLA Piper