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It was announced in the Autumn Statement 2014 that the government would reform both the rates of SDLT applicable to residential property and how the charge is calculated.
SDLT for residential property will now be charged on the portion of the chargeable consideration that falls within each rate band, ie SDLT will apply on a ‘slice’ basis in relation to residential property.
The new rates and thresholds are set out in the table below:
0% £125,000 or under
2% £125,001 to £250,000
5% £250,001 to £925,000
10% £925,001 to £1,500,000
12% over £1,500,000
Prior to this announcement, the charge to SDLT on the acquisition of residential property was determined by calculating the applicable percentage of the full purchase price (or the ‘chargeable consideration’) as set out in Table A of section 55 of the Finance Act 2003. This meant that once the chargeable consideration exceeded a threshold amount, the whole of the chargeable consideration was subject to the relevant rate of SDLT and not just the amount above the threshold, ie SDLT was charged on a ‘slab’ rather than a ‘slice’ basis.
These changes have effect for transactions with an effective date on or after 4 December 2014.
Transitional arrangements are available where contracts for the acquisition of residential property have been exchanged but not completed as at 3 December 2014, whereby purchasers may choose which set of rates and payment structure should apply.
Note that these changes will apply in Scotland until 1 April 2015 when the new land and buildings transaction tax will take effect.
The Chancellor announced that 98% of residential property purchasers will make an SDLT saving as a result of the changes being introduced. However, those purchasing property in excess of £937,500 will face an increased SDLT bill. HMRC has updated its online SDLT calculator to take account of the SDLT charge under the new rules.
No changes have been made to the rates and/or calculation of SDLT on non-residential and mixed property or leases.
"The big news for the residential property market is the SDLT changes—both the move to a ‘sliding scale’ rather than a ‘slab’ application of the rates and the change in the rates of SDLT. The sliding scale may be welcomed as a fair approach and will certainly be good news for those trying to get a foot on the ladder. However, the increase in rates is not good news for the higher end of the market. The government’s illustrations indicate £937,500 as the price beyond which more SDLT will be payable as a result of the changes. This, together with the increase in the rate of ATED shows the government’s determination to take a ‘Robin Hood’ approach with the increase in rates at the top end of the market no doubt intended to fund the decrease in SDLT payable at the lower end. Whether this will deter purchasers at the higher end of the market remains to be seen. Certainly, indications are that the introduction of ATED (and related capital gains tax charge) and the 15% rate in relation to ‘non-natural’ purchasers has not had that effect. So the result may simply be more for the government’s coffers. Indeed, the Chancellor confirmed that ATED raised five times the amount forecast for 2013/14."
Jo Bhatia, solicitor in the Lexis®PSL Property team
Please visit our Corporate Tax blog to download our full analysis of the Autumn Statement
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