UK: Key Issues Arising From 15% Rate Of Stamp Duty Land Tax

Last Updated: 6 August 2012
Article by Amanda Solomon and Martin Griffiths

This article sets out the key issues arising from the introduction of the 15% rate. As the rules are detailed, and potentially complex, specific advice should be sought for each particular set of circumstances.

When might the 15% SDLT charge apply? What to look out for?

There are four conditions, all of which must be satisfied before the 15% rate of SDLT applies:

  • single dwelling - the interest to be acquired must comprise (or include within it) an interest in a single dwelling
  • chargeable consideration - more than £2 million of chargeable consideration must be attributed to the interest in the single dwelling
  • purchaser - the purchaser must be a "non-natural person"; and
  • timing - the transaction must have occurred after the 15% rate came into effect.

Is there a "Dwelling" for the purposes of the 15% SDLT Charge?

A "dwelling" is defined as "a building, or part of a building, ...used or suitable for use as a single dwelling, or ... in the process of being constructed or adapted for such use". A dwelling includes gardens and grounds of the dwelling, or other land that subsists for the benefit of the dwelling. For the purposes of the 15% charge, certain types of building are expressly excluded from being a dwelling, such as hotels, hospitals, prisons, residential accommodation for school pupils or students, nursing homes, etc.

HMRC has confirmed that:

  • a property being constructed will be treated as a dwelling when walls begin to be constructed above or below ground upon foundations; and
  • planning permission for an existing building to be used solely as a dwelling can suffice.

There are also special rules whereby the 15% charge can apply to certain "off plan" purchases.

Is a single Super £2 million Interest Being Acquired?

The fact that the transaction is to acquire an interest in residential property for more than £2 million does not, of itself, mean that the 15% rate will apply. There needs to be within the transaction an interest in a single dwelling to which more than £2 million of chargeable consideration is attributed (referred to in the legislation as a "higher threshold interest" and which we will call a "Super £2m Interest"). For example, a transaction to acquire an interest in a single dwelling for £2.1m will attract 15% SDLT (if the other conditions are also met), but a transaction to acquire 60 dwellings for £80m will not be subject to 15% SDLT (provided that no more than £2m is attributed to any individual dwelling).

What if other Property is acquired along with a single Super £2m Interest?

Contrary to the usual position for SDLT purposes (which is to aggregate linked transactions and their consideration resulting in a higher rate of SDLT that applies to all those transactions), the 15% rate applies only to that part of a transaction which comprises the Super £2m Interest. If other property is acquired with the Super £2m Interest then, for SDLT purposes, the transaction is split into two separate transactions (each requiring a separate SDLT return) and the 15% rate applies only to that part of the total chargeable consideration that is attributed to the Super £2m Interest. For example, if P acquires interests in three dwellings for £5m where the price is split £2.5m, £1.5m and £1m, then the 15% charge applies only to the £2.5m dwelling. If instead the price had been split £1.75m, £1.75m and £1.5m, then no aspect of the purchase would be subject to the 15% rate.

Is the purchaser a "Non-Natural Person"?

A "non-natural person" covers (a) companies, (b) partnerships of which at least one member is a company and (c) collective investment schemes. It is irrelevant whether the purchaser is UK resident or non-resident. There are, however, two kinds of non-natural purchaser excepted from the 15% rate. These are (i) a company acting in its capacity as trustee of a settlement and (ii) a company or partnership acquiring the property in the course of a bona fide property development business (i.e. buying and redeveloping property for sale) which either it or another company in its SDLT group has carried on for at least two years.

Newly established stand alone property developers can therefore still be subject to the 15% rate. Property development is distinguished from property trading, but HMRC's guidance suggests that "property development" has a wide meaning and includes "refurbishment of substantially the whole of the property, for example, fitting new bathrooms, kitchens etc". Perhaps surprisingly, HMRC also indicates that merely an "intention to redecorate and resell" can count as property development (although the redecoration must not be "insubstantial or insignificant").

Timing of the transaction: does it occur after the 15% rate comes into effect?

Assuming the other conditions are met, the 15% rate applies if contracts are exchanged after 20 March 2012. It will not apply if the contract was entered into and the "effective date" (usually Completion but sometimes earlier for SDLT purposes) occurred before 21 March 2012. If contracts were exchanged before, but the effective date was on or after, 21 March 2012, the position is more complex. Broadly, the 15% rate will not apply unless, after 20 March 2012, there is some variation or assignment of the contract or a sub-sale, or there is an exercise of an option, right of pre-emption or similar right.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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