Autumn Budget: Did the Chancellor meet our SDLT predictions?
This year’s Budget has been less dramatic for Stamp Duty Land Tax (SDLT) than some recent Budgets, but there are still changes and announcements of interest.
Higher rates of SDLT for foreign buyers of residential property
On 29 September 2018, just ahead of the Conservative Party Conference, Theresa May said there were plans to make foreign buyers of property in the UK pay extra SDLT. There was talk of this being an extra 1% to 3% on top of existing rates. Many were expecting a consultation paper on the proposals to be published with the Budget. I wondered if they would keep it simple and just increase the 3% surcharge to a 4% or 5% surcharge, perhaps with immediate effect.
In the event we have neither, but the papers released with the Budget include an announcement of a consultation paper to come out in January 2019. The announcement of the consultation itself seems to clarify some points:
- It talks of a surcharge of a further 1%.
- It refers to the charge as being on “non-residents”. So perhaps this is the test that will be applied, rather than on nationality or domicile, or based on whether or not tax is paid in the UK.
- It says that it is to apply to residential property in England and Northern Ireland.
Extension of first time buyers’ relief for shared ownership buyers
This extension got a mention in the Budget Speech itself. When first time buyers’ relief was introduced on 22 November 2017 it could apply to those buying on a shared ownership basis from a council or social landlord. But the relief could only be claimed if the buyer elected to pay the SDLT in one go on the market value of the property. It could not be claimed if the buyer elected to pay SDLT in stages (with another payment when staircasing took them to over 80%).
Sometimes less had to be paid up front to pay SDLT without relief on the actual share bought rather than on the market value of the property with first time buyer’s relief. This would particularly be the case if only a small share was being bought initially in a high value property.
Effective straight away, first time buyers’ relief can apply even if the market value election is not made. Here are some key points:
- The usual requirements remain, such as the buyer intending to live in the property as their only or main residence.
- The relief cannot be claimed if the market value is over £500,000 (even if the initial payment for the share acquired is less).
- The relief only covers the price for the initial share and the rents. It does not cover a later staircasing to over 80% (when SDLT can be due).
- The change is made with retrospective effect, so those who completed the shared ownership purchase before the Budget are given 12 months from the Budget to make a claim.
Reclaim time limit extended for the 3% surcharge
This is a particular favourite of mine and it is pleasing to see that my lobbying has had effect!
The background is the need to pay SDLT at the higher rates on buying a new home without selling an old home and being able to reclaim the extra 3% when the old home is sold. This affects people who buy their new home before they sell their old one. It is well known that they would have three years to sell their old home so as to be able to claim back the 3% extra paid on the new one.
What was less well known was the time limit for making the reclaim. Some people missed it and were denied a refund of the 3% extra they had already paid. The time limit was set as the later of:
(a) Three months from the completion of the sale of the old home and
(b) Twelve months from the “filing date” of the purchase of the new home.
As the filing period is 30 days (but see below for its reduction to 14 days on 1 March 2019) this meant that if the sale of the new home was about 10 months after the purchase of the new home, the buyer only had three months to get the application in. I am aware of a number of cases where this was missed and HMRC refused a repayment.
The amendment, made effective straight away where the sale of the old home completes on or after 29 October 2018, is to change the first time limit (see (a) above) to 12 months from the completion of the sale of the old home.
A great improvement; thank you HMRC for listening!
Meaning of “major interest” for the higher rates
Since the higher rates of SDLT for “additional properties” were brought in from 1 April 2016 there has been a difficulty in interpreting what is meant by “major interest” and when it includes a share in a property. This is particularly important because:
- Only the purchase of a “major interest” can be liable to the higher rates. What if a buyer only bought a share in a property?
- Only holding a “major interest” in a property “counts against” a person. What if the buyer only had a share in another property?
HMRC always took the view that as drawn the legislation had to be interpreted to include a share in land within the meaning of “major interest”. There were difficulties in that case law suggested an undivided share was not a major interest and there are inconsistencies with other parts of the legislation which are drawn on the basis that an undivided share is not a major interest. The HMRC view seemed consistent with a purposive construction of the legislation, given that otherwise all sorts of arbitrary results would follow.
The Budget has (at last) put the matter beyond doubt by amending the definition of “major interest” with effect for purchases completing on or after 29 October 2018 to include an undivided share in land. The information explaining the change says:
- It is to ”clarify the meaning of major interest in land for the general purposes of HRAD”.
- “The measure will also provide more certainty for purchasers of residential property by making it clear, that for HRAD, a “major interest” includes an “undivided share in land”.”
- “The term `major interest` is used to ensure that HRAD applies to only meaningful purchases of residential property and does not apply to `minor interests`, for example a right of way or a right to light.”
- “Some external stakeholders have suggested that it is unclear whether the legal definition of `major interest` includes an `undivided share in land` and, consequently, whether transfers involving an `undivided share in land` are within the scope of HRAD.”
- “While HMRC’s view is that the HRAD legislation as it stands enables us to tax all purchases of undivided shares in land, paragraph 2 of the main Schedule will be amended to put the position beyond doubt, and make clearer that a major interest in a dwelling includes an undivided share in a dwelling for the purpose of HRAD.”
So HMRC are sticking to their original view of the meaning of "major interest".
As announced before, the period within which SDLT has to be paid and a return filed is to be reduced from 30 days to 14 days with effect for transactions completing on or after 1 March 2019. Changes to the SDLT return are promised ready for 1 March 2019 so that less information is needed.
Multiple dwellings relief
This lives to fight another day, I was wrong (again) to anticipate that it would be abolished.