Many people will have tuned into the recent Autumn Statement and Comprehensive Spending Review, and probably lost focus after the revelation that Tax Credit cuts were to be scrapped – for now at least. If they’d stayed glued to the box or tuned into their radios, then they’d have heard about some changes that could potentially have a significant impact on people looking to buy second homes or dip their toes into the buy-to-let market. If you are considering either of these options, what could the changes mean for you?
In last week’s Autumn Statement, the Chancellor announced higher rates of Stamp Duty Land Tax (SDLT) for purchases of additional residential properties, such as second homes and buy-to-let properties. He announced that the changes will come into effect from 1st April 2016. He also introduced a number of other changes to Stamp Taxes that have largely floated under the radar.
Following the Statement HMRC confirmed that the changes will apply to all completions that take place on or after 1st April 2016; however, the Revenue clarified the position with contracts entered into before the due date, stating that any contract entered into on or before 25th November 2015 will not be affected by the new rates, subject to normal rules about variation or assignment of these contracts.
The new higher rates – an extra 3 per cent on top of existing SDLT rates – will not affect transactions with a purchase price of up to £40,000 where a SDLT return is not required. The changes will also not apply to the purchase of a main residence or to corporates and funds making significant investments in residential property. HMRC has yet to clarify what impact the three per cent extra SDLT is likely to have on multiple-dwelling relief.
The current rates and new rates of SDLT for additional residential property purchases are:
| Band | Existing Rates | New additional SDLT Rates |
| *£0 – £125k | 0% | 3% |
| £125k – £250k | 2% | 5% |
| £250k – £925k | 5% | 8% |
| £925k – £1.5m | 10% | 13% |
| £1.5m+ | 12% | 15% |
*Only applies to purchases over £40,000. For purchases at £40,000 or under no SDLT return is required.
What other changes were announced to Stamp Taxes?
Changes to the filing and payment process
A consultation is expected in 2016 regarding the changes to the SDLT filing and payment process, including a reduction in the filing and payment window from 30 days to 14 days. These changes are expected to come into effect in 2017/18 further to the introduction of the Finance Bill 2017.
Property investment funds
The introduction of a new relief from SDLT (seeding relief) and changes to the SDLT treatment of Co- ownership Authorised Contractual Schemes (CoACSs) has been announced. Seeding relief will relieve the initial transfer of properties into Property Authorised Investment Funds (PAIFs) and CoACSs, to remove barriers to investment.
ATED and SDLT: reliefs
There will be an extension to the scope of the reliefs available from (Annual Tax on Enveloped Dwellings) ATED and the 15 per cent higher rate of SDLT where a residential property is held for the purposes of an Equity Release Scheme (Home Reversion Plan), occupied by certain employees, or acquired for demolition or conversion into non-residential use. These amendments will come into effect on 1 April 2016.
Stamp duty/SDRT: deep in the money options (DITMOs)
Legislation with be introduced in Finance Bill 2016 to stop avoidance of stamp duty and Stamp Duty Reserve Tax (SDRT) where DITMOs are used to transfer shares to a depositary receipt issuer or clearance service.
Shares transferred to a depositary receipt issuer or clearance service as a result of the exercise of an option will now be charged the 1.5 per cent higher rate of stamp duty or SDRT based on either their market value or the option strike price, whichever is higher.
The change will have effect from budget day, 16th March, 2016 and apply to options which were entered into on or after 25 November 2015 and exercised on or after budget day 2016.
