Other SDLT changes announced are the extension of multiple dwellings relief to superior interests in shared ownership homes and a seeding relief for PAIFs and the new authorised contractual funds.
The Annual Tax on Enveloped Dwellings (ATED) on homes worth more than £2m will now increase by 50% above the rate of inflation.
Some real estate funds may be affected by proposals to target structures designed to convert investment management fee income into capital. However, it appears that this measure is not aimed at traditional carried interest structures.
There is an extension of business rate support, including the 2% cap on the RPI increase in the rates multipliers, and the government will carry out a review of the future structure of business rates.
And we already have the government response to the consultation on introducing capital gains tax (CGT) on certain non-UK resident individuals disposing of UK residential property, which included details of an exemption for student accommodation and for widely held non-UK companies and funds.
Reform of SDLT
From 4 December 2014, SDLT for residential property will be charged at different rates depending upon the portion of the purchase price that falls within each rate band. There is no change as to how SDLT is calculated on purchases of non-residential property or on the rent payable when a new lease is granted.
The changes will apply to residential properties completed on or after 4 December 2014. Where contracts have been exchanged on or before 3 December 2014, and the transaction is completed on 4 December or later, you can choose whether to use the old or the new rules.
The residential land or property SDLT rates and thresholds from 4 December 2014 are:
|Purchase price of property||Rate of SDLT|
|Up to £125,000||Zero|
|Over £125,000 to £250,000||2%|
|Over £250,000 to £925,000||5%|
|Over £925,000 to £1.5 million||10%|
|Over £1.5 million||12%|
For example, if a buyer exchanges contracts for the purchase of a house for £275,000 on 5 December the SDLT will be calculated as follows:
|0% on the first £125,000||£0|
|2% on the next £125,000||£2,500|
|5% on the final £25,000||£1,250|
|Total SDLT payable||£3,750|
There are no changes to the current 15% SDLT rate payable by certain non-natural persons that purchase residential property for more than £500,000.
And the rules that can apply the rates for commercial property where six or more residential properties are acquired as part of a single transaction will continue to apply.
SDLT multiple dwellings relief for shared ownership
The government will extend multiple dwellings relief to include superior interests in residential property where:
- the transaction is part of a lease and leaseback arrangement; and
- the property is acquired from a qualifying body such as a housing association.
When multiple dwellings relief is available the rate of SDLT chargeable on the acquisition of two or more dwellings is determined by reference to the mean price, subject to a minimum rate.
SDLT seeding relief for authorised funds
The government will introduce a SDLT seeding relief for PAIFs and co-ownership authorised contractual schemes (CoACSs). It will also make changes to the SDLT treatment of CoACSs investing in property so that SDLT does not arise on transactions in the units (subject, as always, to “resolution of potential avoidance issues”).
Unfortunately, these changes will not be implemented until 2016, which could well slow up the adoption of PAIFs and CoACSs in the meantime.
The ATED applies to UK residential properties owned by companies, partnerships (with a corporate member) or collective investment schemes (UK or non-UK), unless they are held as part of a property development business or let to third parties on a commercial basis. The rate of the ATED for properties worth more than £2m will increase by 50% above inflation from 1 April 2015. This means that the rates for 1 April 2015 to 31 March 2016 will be:
|£2m - £5m||£23,350|
|£5m - £10m||£54,450|
|£10m - £20m||£109,050|
Investment management fees
Legislation will be introduced with effect from 6 April 2015 to counteract structures designed to convert guaranteed investment management fee income into capital. Amounts caught by these rules will be subject to income tax.
The detailed rules are yet to be published but it appears that these changes are not intended to catch traditional carried interest or co-invest.
The doubling of small business rate relief will be extended to April 2016. And the 2% cap on the RPI increase in the business rates multiplier will be extended to April 2016.
The government will also carry out a “fiscally neutral” review of the future structure of business rates by Budget 2016. Interim findings will be published in December 2015.
CGT for non-residents on UK residential property
On 27 November, the government published more details of its plans to introduce capital gains tax on certain non-residents who dispose of UK residential property.
The headlines are:
- confirmation that the government does not intend to broaden the scope to tax non-residents on commercial real estate investments;
- the tax is only intended to apply to investors so trading profits should continue to be dealt with under the existing tax rules;
- communal residential property, such as care homes and “purpose built” student accommodation will be exempt;
- non-UK companies and funds that are widely held will be exempt;
- non-UK companies that are taxed under these new rules will be taxed at 20%, subject to indexation;
- but the ATED-related CGT charge will remain so some non-UK companies will continue to be taxed under those rules at 28%;
- non-UK resident individuals will be taxed at 18% or 28% depending upon what other UK income and gains they have;
- a modified principal private residence relief will be available to non-resident individuals, which will require them to spend a minimum number of days living in their UK properties;
- group companies will be able to pool their relevant gains and losses from UK residential property; and
- only gains accruing post-April 2015 will be taxed. Non-residents who already own UK residential property will be able to “rebase” to the April 2015 market value or time apportion the gain.
Please select the link to read our briefing on what this latest government response means for developers and investors, including:
- the scope of the exemption for student and other communal accommodation;
- how developers may be taxed under the proposed changes;
- the changes to principal private residence relief, which developers marketing properties will need to be aware of as it will affect whether potential buyers are taxed on their UK homes; and
- the scope of the exemptions for non-UK companies and funds that are widely held.