Property taxes update

Calls for abolition of stamp duty land tax (SDLT) were never likely to be heeded in the autumn budget, given that HMRC collected SDLT of more than £11bn in 2016/17.

AAT did not support abolition, but recommended that liability for the tax be switched to the seller. It argued that allowing people moving up the property ladder to pay SDLT on the lower-priced house that they were selling would improve mobility, helping more people to get on to the ladder for the first time.

The government’s response was to announce a new relief for first-time buyers. “Ninety-five per cent of first-time buyers that [would otherwise] pay SDLT will benefit, up to a maximum of £5,000, and 80% of first-time buyers will pay no SDLT at all,” it said.

This article provides an overview of the most recent SDLT developments and highlights the devolution of taxes on land transactions in Scotland and Wales. It focuses on residential property bought by natural persons rather than companies.

Finance (No.2) Bill 2017-19, expected to be become Finance Act 2018 by the end of March, makes two changes to SDLT. The measures were debated, but not amended, by MPs on 18 December. The bill was then examined by a public bill committee in January, and a version of the bill showing amendments made by that committee was posted on the parliament website. Further changes are possible at the bill’s report stage, which is set for 21 February.

Relief for first-time buyers

Clause 41 of the bill provides the relief for first-time buyers with effect from 22 November 2017. No SDLT is payable if the consideration does not exceed £300,000, and SDLT is due at 5% on any excess over £300,000.

The relief, which must be claimed in a land transaction return, is available on a first-time buyer’s purchase of a dwelling to be occupied as the purchaser’s only or main residence so long as the price paid does not exceed £500,000.

The clause inserts a new section 57B and schedule 6ZA in FA 2003. “First-time buyer” and other terms are defined in schedule 6ZA, part 3. HM Revenue & Customs published a guidance note on 22 November, setting out the conditions for relief and how to claim.

Higher rates of SDLT

Clause 40 and schedule 11 to the bill make minor changes to the rules setting higher rates of SDLT for additional dwellings (eg. second homes and buy-to-let properties) and dwellings acquired by companies.

The standard rates of SDLT (set out in FA 2003 s 55(1B)) are:

  • 0% on so much of the consideration as does not exceed £125,000;
  • 2% on consideration between £125,001 and £250,000;
  • 5% on consideration between £250,001 and £925,000;
  • 10% on consideration between £925,001 and £1.5m; and
  • 12% on the remainder, if any.

For a “higher rates transaction” (FA 2003 schedule 4ZA inserted by FA 2016) the corresponding rates are 3%, 5%, 8%, 13% and 15%. Those benefiting from the changes to the higher rates rules will include “those affected by divorce or the dissolution of a civil partnership, where they have had to leave a matrimonial home but are required to retain an interest in it”, financial secretary to the Treasury Mel Stride said during the 18 December debate.

Schedule 11 also closes an avoidance opportunity. The government had become aware of efforts to avoid the higher rates by “disposing of only part of an interest in an old main residence to qualify for relief from the higher rates on the whole of a new main residence”, Stride explained.

Devolution

SDLT applied across the United Kingdom until April 2015, when Land and Buildings Transaction Tax (LBTT) replaced SDLT for transactions in Scotland.

LBTT rates and bands are set out on the Revenue Scotland website. The Scottish government launched on 9 February a consultation on a first-time buyer relief for properties under £175,000, which the government intends to introduce in June.

For purchases in Wales, Land Transaction Tax (LTT) will replace SDLT from April 2018.

The Welsh Revenue Authority will administer LTT. From 1 April 2018 onwards returns for land transactions in Wales will be filed with the WRA rather than HMRC, according to WRA guidance.

In December the Welsh government announced, in response to the new SDLT relief for first-time buyers, that the proposed LTT rates would be revised.

The revised rates were set out in a devolved taxes update published last month, which stated that the Welsh government “will not be introducing a first-time buyers’ relief under LTT”. The new LTT rates were set, however, “to increase the progressivity of the tax compared to SDLT”, it added.

 

Andrew Goodall is a freelance tax writer and journalist.

Comments

Related articles