Stamp Duty Land Tax – Rules for Bulk Purchases

Legislation will be introduced in the Finance Bill 2011 to introduce a new relief for purchasers of residential property who acquire more than one dwelling. Currently SDLT is charged at the rate applying to the total price paid for a portfolio of properties. Where the total exceeds £500,000 then the four percent rate applies. The new relief will reduce the rate of SDLT on the purchase of multiple residential properties by relating it to the mean price, i.e. the total price divided by the number of properties. The minimum rate of tax will be one percent.

The new rules will take effect from the date of Royal Assent.

Stamp Duty Land Tax – Anti-avoidance

Three legislative changes are made to block SDLT avoidance schemes:

  • Sub-sale relief is specifically blocked where it might apply in combination with the alternative property finance reliefs;
  • It will not be possible to qualify as a "financial institution" for the purposes of the alternative property finance reliefs simply by holding a consumer credit licence; and
  • The market value rule for exchanges of property can no longer result in a reduction of tax compared with a charge made on the normal basis of actual consideration paid.

The new rules took effect from 24 March 2011. The measures are technical and specifically targeted. They should not impact on the general application of the SDLT rules or make them more complex.

Abolition of Tax Relief for Contaminated Land

The Government has confirmed that it intends to abolish the tax relief given for remediating contaminated or derelict land. No date has been given for the abolition, but it will be after 2012.

Clients, with real estate assets ready for development, will need to consider their investment options if this relief has been factored into the viability of planned schemes. Additionally, for property developers, holding remediated property as stock, relief will not be available until a sale goes through the profit and loss account.

Business Premises Renovation Allowance

Business Premises Renovation Allowance will be extended for a further 5 years and will now apply to qualifying expenditure incurred before April 2017.

Real Estate Investment Trusts

An informal consultation exercise will be undertaken to reduce barriers to entry to the REIT regime and to make it easier for investors to invest in REITS. In particular, this may help the creation of the long-awaited residential REIT since the UK residential investment sector is currently fragmented so would benefit from any measures to encourage newly created REITs.

The measures subject to consultation are:

  • Introduction of a diverse ownership rule for institutional investors that will enable them to meet the close-company rule;
  • Relaxation of the listing requirement and introduction of a grace period before the close company test needs to be met;
  • Abolition of the conversion charge for companies joining the REIT regime;
  • Allowing cash to be a good asset for the purpose of the 75 percent asset test; and
  • Redefinition of financing costs for the interest cover test and extension of the time limit to comply with the distribution requirement.

It is intended that the informal consultation will be completed in time for any measures to be included in Finance Bill 2012.

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.