Stamp Duty Land Tax ("SDLT") is a tax payable on any UK land transaction which involves the acquisition of a "chargeable interest". This includes the conveyance of a freehold interest and the grant or assignment of a lease. SDLT does not apply to "exempt interests" such as licences, tenancies at will and security interests.

The tax is on the transaction itself rather than on the documents, which means that SDLT is payable irrespective of whether a written instrument is used for a transaction. This is the major difference between SDLT (a transaction tax) and the old stamp duty regime (a duty on documents).

SDLT is charged at the applicable rate for the relevant land transaction on the "chargeable consideration", which includes any VAT payable. The liability for SDLT falls on the purchaser, who must account to HMRC on a self-assessment basis.

When SDLT was introduced on 1 December 2003 the top rate was 4%. This rate still applies to commercial transactions where the chargeable consideration exceeds GBP 500,000, and to residential transactions where the consideration is more than GBP 500,000 but not more than GBP 1 million.

For residential property where the chargeable consideration is more than GBP 1 million but not more than GBP 2 million the SDLT rate is 5%.

The 2012 Changes

The 7% rate

In 2012, the top rate of SDLT for residential acquisitions was increased to 7% where the chargeable consideration exceeds GBP 2 million and where the effective date falls after 21 March 2012. The 7% rate applies to freehold purchases and lease assignments where the consideration exceeds GBP 2 million, and also to the grant of leases where the premium exceeds GBP 2 million.

The 15% rate

In addition to the 7% rate, a new 15% higher rate was introduced which applies to purchases by companies (and other "non-natural persons") of interests in single residential dwellings where the chargeable consideration for the interest exceeds GBP 2 million (so called "higher threshold interests").

This higher threshold rate was introduced as a package of three measures to discourage taxpayers from trying to avoid SDLT by "enveloping" high value residential properties in offshore companies (and

other non natural persons). The other two measures, which will be enacted in the Finance Act 2013, are: the introduction of a new annual charge called the "Annual Tax on Enveloped Dwellings", which will apply (from 1 April 2013) to high value residential properties held by companies (and non-natural persons); and the extension of 28% capital gains tax to gains (accruing after 5 April 2013) realised by companies (and non-natural persons) on the future disposal of high value residential properties.

The new 15% SDLT rate applies to transactions with an effective date on or after 21 March 2012. Transitional provisions allow the old rates to apply where, the transaction is carried out pursuant to a contract that was in place before 21 March 2012.

Essentially, the 15% rate will apply to the acquisition of an interest in a single residential dwelling (freehold or leasehold) where the consideration is over GBP 2 million and the purchaser is a "non-natural person", which will include:

  • A company (this does not include a company acting in its capacity as trustee of a settlement or as a bare trustee)
  • A partnership one or more of whose members is a company
  • A collective investment scheme

If there are joint purchasers the 15% charge will apply if one of them is a non-natural person.

New Exemptions

The original provisions enacted in 2012 contained an exemption from the 15% rate for purchases by property development companies, where the company (or a member of its group) had been carrying on a property development business for at least two years. The rationale for the exemption was that the provision of housing stock should not be discouraged.

Following extensive consultation in 2012, the Government decided to widen the property developer exemption and enact a series of other exemptions from the 15% charge. The amended and new exemptions will mirror those that will apply to the new Annual Tax on Enveloped Dwellings, and will provide relief for purchases by qualifying property developers and traders, qualifying rental businesses, companies which use the property to provide accommodation for qualifying staff, and by charitable companies, providers of social housing, public bodies and bodies established for national purposes. The amendments to the 2012 rules will apply from Royal Assent of the Finance Bill 2013.

The 15% SDLT rules and new exemptions are lengthy, detailed and untried. Accordingly, purchasers of interests in residential dwellings, where the consideration is more than GBP 2 million, will need to take great care to determine whether the 15% rate applies or whether they will be able to rely on one of the many new exemptions.

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.