A reminder that land transactions in respect of residential property with both an effective date on or after 6 April 2011 and chargeable consideration of more than £1m, will attract a 5% SDLT rate.
There is a very narrow exemptions for transactions effected in pursuance of 25 March 2010 transactions.
Several planning points arise:
- Check if you have a pre-25 March 2010 contract;
- Most obviously bring forward your effective date. The effective date is the earlier of the point of completion or "substantial performance" i.e. the point at which a party either enters occupation of a property or pays over a substantial amount of the consideration.
- There is a useful exemption from the definition of residential which may typically be used by investors (developers);
- Very importantly the rate change only applies to pure (100%) residential, ie. not to commercial and not to mixed sites, eg. A block comprising say 3 ASTs and a shop on the ground floor in Kensington, where the main value might well be in the residential flats, will, after 6 April 2011, continue to attract a 4% rate.
Do note that we have found no evidence of any anti-avoidance legislation currently in place. However, there is the scope for the Treasury to make further amendments via delegated legislation as they see fit. This means that the current position may be altered at short notice during the tax year.
But meanwhile there may be opportunities involving mixed use developments:
- Section 116(1)(a) FA includes any building that is "suitable for use" as a dwelling within the scope of residential property. These will thus be taxed at the higher SDLT rate.
- This suggests that simply declaring a room is used as a "personal trainer's suite" or a "music practice room" etc. and installing some appropriate equipment will probably not be enough to qualify for the lower SDLT rate.
- However, if one were to genuinely adapt a property for non-residential purposes – perhaps by providing only fitted office furniture, installing a simple sink rather than a full bathroom, and keeping any kitchen facilities to a minimum – then this should be enough to satisfy the definition of "non-residential property". (NB Any change of use may also require planning consents.)
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.