UK Tax Technicians Slam SDLT Surcharge
The Association of Tax Technicians (ATT) has expressed its disappointment that the UK Government intends to press ahead with plans to introduce a stamp duty land tax (SDLT) surcharge on purchases of second homes from April 1.
Higher rates of SDLT will apply to purchases in England, Wales, and Northern Ireland of buy-to-lets and second homes that cost more than GBP40,000 (USD56,537). The rates will be three percentage points above the current SDLT rates, and will be charged on the portion of the value of the property that falls into each SDLT band.
In Scotland, where a Land Buildings Transactions Tax (LBTT) operates in place of an SDLT, a three percent supplement will apply in addition to the existing LBTT rate on the purchase of second properties valued at more than GBP40,000. It will apply to the whole purchase price and not just the portion of the price above GBP40,000.
Both the UK SDLT surcharge and the Scottish LBTT supplement will apply to purchases made on or after April 1, 2016.
As part of his 2016 Budget, UK Chancellor George Osborne announced further details of how the SDLT surcharge will operate. To help those moving in difficult circumstances, purchasers will have 36 months rather than the originally proposed 18 months to either claim a refund from the higher rates or before the higher rates will apply, in the event that there is a period of overlap or a gap in ownership of a main residence. The Government has also decided that there will be no exemption from the higher rates for significant investors, and that the higher rates will apply equally to purchases by individuals and corporate investors.
The Government will provide GBP60m of the additional receipts generated by the higher rates to community-led housing developments in rural and coastal communities where the impact of second homes is deemed particularly acute.
Commenting on the announcement, Yvette Nunn, Co-Chair of the ATT’s Technical Steering Group, said: “It is extremely disappointing that the Government has failed to listen to the issues we raised with the design of this measure. As we have expressed previously, the new charge will affect buyers who unexpectedly find themselves in a bridging loan situation.”
“While it might be a comfort to some to know that, if they sell their original property within the permitted 36-month period they can claim a refund of any higher rate stamp duty they have to pay, it is not going to be of much use to a good number of other buyers who find that the additional cost – albeit hopefully temporary – of the stamp duty stretches their already dire financial resources beyond breaking point. They will have no choice but to pull out of the purchase, risking the collapse of the whole chain.”
The ATT has also expressed concerns over the treatment of married couples and joint purchasers. Married couples will be treated as “one-unit” for the purposes of the surcharge. Where a joint purchase takes place, if one of the joint purchasers already owns another property and the joint purchase is not the replacement of a main residence for both purchasers, the higher rate of SDLT will apply to the whole value of the transaction.
Nunn said: “This seems particularly harsh as it seems to affect the very people that the Government is trying to help – young first time buyers trying to get on the property ladder. It is also affecting the middle-earning members of society – those who want to help their children but cannot afford to give them the money for a deposit outright. The Government has rejected our suggestion that there should be an apportionment system so that the share being purchased by the young adult child, for instance, does not suffer the higher rates. The Government said this would add complexity to the tax system and the approach it is taking is simple. It might be simple but it is incredibly unfair.”