New non-residential SDLT rates
The 2016 Budget abolishes the slab system of calculating SDLT on non-residential property transactions. The top non-residential rate is increased from 4% to 5%, but lower rates are reduced. The new rates are:
|£0 – £150,000||0%|
|£150,001 – £250,000||2%|
|£250,001 or more||5%|
For example, a purchase of 50 acres of farmland for £325,000 will now cost only £5,750 in SDLT, compared with £9,750 under the old rates. Buying an office building for £5m will now cost £239,500 in SDLT compared with £200,000 under the old regime. The tipping point is just over £1m, at which figure a purchaser under the old rates would have paid £40,000 in SDLT whereas the new rate SDLT liability will be £39,500. The new rates apply to “mixed” property that comprises both residential and non-residential property, as well as to property that is entirely non-residential. The Chancellor has thus reduced (but by no means eliminated) the SDLT advantages conferred on purchasers of large houses with non-residential elements such as agricultural land, compared with buyers of property that is exclusively residential.
New high NPV lease rate
SDLT on lease rents is currently calculated by reference to the net present value (“NPV”) of the annual rent. If this exceeds £150,000, SDLT is due at 1% on the NPV figure. From 17 March SDLT on leases where the term and rent produce an NPV figure of more than £5m will attract SDLT at 2% of the NPV.
The new rates will apply to transactions completing on or after 17 March 2016. Anyone who exchanged contracts on or before March 16th can choose which rates will apply. Purchasers enjoying the transitional right of choice must avoid varying or assigning the contract or entering into a sub-sale contract after 16 March. Option holders and those with rights of pre-emption entered into before 17 March do not enjoy the transitional right of choice.
On Budget Day, the Government published its “summary of consultation responses” to those, including Clarke Willmott, who responded to the December 2015 consultation document on the new 3% surcharge on the purchase of additional residential properties. There will be some significant changes to the December proposals.
The two periods of 18 months related to “replacement of main residence” relief will be extended to 36 months. So those who sell their main residence before buying a new one will have 36 months after their sale in which to claim replacement of main residence relief (if needed) on the purchase of their new main residence. Those who sell their old main residence within 36 months after buying a new one may claim a rebate of the surcharge SDLT they paid when they bought the new one.
Companies and other non-natural persons will have no special reliefs from the 3% surcharge. The December proposals contemplated a relief either for bulk purchases of 15 or more dwellings or for large investors owning 15 or more dwellings. No such relief will be available. It seems that ordinary reliefs, such as group relief, charity relief and registered social landlord relief, will still apply. But developers and others will have no reliefs comparable to those available to them under the 15% penal rate regime.
The Government has listened to those who advocated expanding exemption from joint treatment for married couples who separate. In addition a special exemption will disregard a “small interest” (50% or less) in a dwelling inherited within 36 months of the relevant dwelling purchase transaction.
Reliefs from 15% penal rate SDLT and ATED
The Budget Speech confirms that that, as announced in the Autumn Statement, Finance Act 2016 will extend the reliefs available from the Annual tax on Enveloped Dwellings and the 15% penal SDLT rate to equity release schemes (home reversion plans), property development activities where the property will cease to be a dwelling and properties occupied by employees; with effect from 1 April 2016.