UK proposes limited exemptions from higher SDLT rate on purchases of additional properties

The government is seeking views on whether it should only exempt investors with an existing residential property portfolio of at least 15 properties at the time of the transaction from the higher rates, as indicated during November's Autumn Statement; or whether it should instead target the exemption at bulk purchases of 15 properties or more. It is also seeking views on whether the exemption should be extended to individuals, as well as to corporate investors, according to a consultation document published at the end of December.

The government intends to introduce an extra 3% SDLT charge on purchases of additional residential properties costing more than £40,000 from 1 April 2016. The government intends to use some of the additional tax collected from those purchasing second homes or buy-to-let properties to increase the affordable housing budget and help first-time buyers, according to the consultation.

"The higher rates of SDLT are … intended to apply to the vast majority of circumstances where individuals or companies and other non-natural persons purchase additional properties, which can impact on other people's ability to get on the housing ladder," it said in its consultation.

"However, the government is aware that some purchases of additional properties can positively contribute to an overall increase in housing supply and support the government's wider housing strategy, helping to facilitate the development and quality of the housing stock across tenure types. Given the potential positive impacts some significant developments can have, an exemption from the higher rates of SDLT targeted at some forms of investment in property may be justified," it said.

Real estate tax expert John Christian of Pinsent Masons, the law firm behind Out-Law.com, said that the "detail" of the promised exemption would be important.

"The suggested alternative of exemption for an acquisition of 15 or more properties may be more beneficial for a newly-launched fund," he said. "Linking the exemption to a number of properties has the benefit of simplicity and the threshold should be workable for most portfolio acquisitions, assuming that flats will count as individual properties. A concern over extending the exemption to individuals could be that HMRC will feel the need to include avoidance provisions which may introduce uncertainty for institutional investors."

"For individuals with more than one property, it is difficult to see why the exemption for replacement of a main residence will be a fact-based test rather than linked to the election for CGT [capital gains tax] private residence relief. The main concern seems to be to ensure that the higher rate applies to rented properties in which case the exemption could be linked to the dwelling not being used for rental for a stated period," he said.

The higher rate of SDLT will apply to most purchases of additional residential properties in England, Wales and Northern Ireland where, at the end of the day of the transaction, individual purchasers own two or more residential properties and are not replacing their main residence. It will also generally apply to purchases of residential property by companies. Where the property is purchased jointly, at the end of the day of the transaction each one of the joint purchasers will only be able to own one residential property for the additional charge not to apply.

The government intends to introduce a "refund" mechanism, so that those who purchase a new main residence before disposing of their previous main residence will not be subject to an increased tax burden. Purchasers will be entitled to a refund if they pay the higher rate of SDLT on the purchase of a new main residence, but dispose of their previous main residence within 18 months.

Transactions or linked transactions involving the purchase of six or more residential properties will remain eligible for multiple dwellings relief (MDR), according to the consultation. Purchasers will continue to be able to choose whether to pay non-residential rates on the total purchase price, or to take the higher rates into account when calculating an average rate of SDLT for each property rather than applying SDLT to the entire transaction value.

The consultation will close on 1 February 2016. The government will confirm how the higher rate will apply as part of the 2016 Budget on 16 March.