The Government’s stated objective, in introducing the 15% penal SDLT rate on corporate purchases of dwellings in March 2012, was:
|“… to ensure that individuals and companies pay a fair share of tax on residential property transactions and to tackle avoidance, including the wrapping of property in corporate and other “envelopes”.|
None of the exceptions and reliefs applicable to the penal 15% rate applies to companies buying dwellings for demolition and re-development for their own business occupation. As introduced, the penal rate only applied to dwellings costing more than £2m, so businesses expanding in this way were only very rarely troubled by penal rate SDLT.
However, in March 2014, the price threshold at which the penal rate kicks in was dropped to £500,000. So a company buying a dwelling for £500,001 in order to knock it down and incorporate the site into its adjoining commercial premises will pay £75,000 in SDLT. Conversely a partnership of natural persons buying the same dwelling for the same purpose will pay only £15,000. A company buying the dwelling to demolish, re-develop and sell on to a third party will also pay only £15,000 in SDLT.
Why should incorporated businesses buying dwellings for redevelopment and occupation by themselves, with no avoidance motive whatsoever, pay five times more SDLT than either their un-incorporated competitors or commercial developers? There’s clearly no “wrapping” avoidance going on when a corporate manufacturer or retailer buys a dwelling to re-develop the site for its own operational purposes.
The Treasury’s answer would no doubt be that providing a relief would risk increased avoidance. But a relief available to “owner-developers” could be made conditional upon:
- planning permission for non-residential redevelopment being granted before the effective date of the transaction,
- the permission being initiated (as defined in s56 of the T&CPA1990) within a defined period, say one year, after the effective date of the transfer to the company, and
- no “non-qualifying individual” (i.e. a person connected with the acquiring company) having occupied the dwelling between the transfer and the date on which the permission is initiated.
Of course if the company buyer can persuade the seller to demolish the dwelling between exchange and completion, then the penal rate won’t apply. But not many sellers would be willing to do so. Those who are will probably seek a significant share of the SDLT saved.