A lower SDLT (Stamp Duty Land Tax) charge on certain residential portfolio investments is to be introduced with effect from when Finance Act 2011 receives Royal Assent (expected imminently). SDLT rates are between 1% and 4% for commercial property and 1% and 5% for residential property, depending on the price.
On the acquisition of interests in two or more residential properties, e.g. a residential portfolio investment, the rate of SDLT is currently determined by reference to the total price for all the properties. For example, on the acquisition of 5 flats for £1.2million, SDLT would be chargeable on the £1.2million price at the rate of 5%, giving an SDLT liability of £60,000.
Under the Finance Bill, however, the rate of SDLT is (in general) to be determined by reference to the average price of the residential properties, subject to a minimum rate of SDLT at 1%. So, on the acquisition of 5 flats for £1.2million, the average consideration for the flats would be £240,000, and SDLT would therefore (subject to certain exclusions) be chargeable at 1% on the £1.2million price, giving an SDLT liability of £12,000. The relief is not available for properties which are subject to a lease of 21 years or more. With appropriate structuring, the relief may also be available for ‘off plan’ residential portfolio purchases.
Where a residential portfolio includes commercial property, the relief can be claimed in relation to the price for (or attributable to) the residential part (with SDLT being assessed on the price for the commercial part by reference to the total price for the portfolio).
The relief can be clawed back if certain circumstances occur within three years after the acquisition, e.g. if the purchaser starts converting the residential property to commercial property.
The new relief is, therefore, potentially, quite valuable, but care needs to be taken to ensure that, on the facts, it is available and will not be clawed back after the acquisition.