There have been two important developments in relation to Stamp Duty Land Tax (SDLT) recently: a temporary reduction, and (for non-residents) an impending increase, of SDLT.
The first, which received much press attention, is the temporary reduction in SDLT rates until 1 April 2021. It means that no SDLT is paid at all on up to £500,000 of the purchase price for residential property. Significantly, it also benefits buyers caught by the 3% Higher Rate on Additional Dwellings (HRAD), as such buyers now only pay SDLT at 3% on the first £500,000.
As a result, there is a special window of opportunity for investors in the private rented/build-to-rent sector to make significant SDLT savings. Such investors may previously have paid SDLT at the non-residential rates of just under 5% (which generally applies where six or more units are acquired), it may now be more beneficial for them to claim "Multiple Dwellings Relief" (MDR). Depending on the average unit price, this can bring the cost down to 3% during the temporary SDLT "holiday".
The second development relates to the proposal for an additional 2% SDLT surcharge on non-residents purchasing residential property in the UK. Since our previous update the Government has published draft legislation, confirming that from 1 April 2021 the surcharge will apply to non-UK resident companies, trusts, and individuals who have not been resident for 183 out of a continuous 365 day period that falls within the "relevant period". Once applicable, in the high-end residential sector, the top slice of a purchase price above £1.5 million will attract an SDLT rate of 17%.
For these purposes:
- The "relevant period" is 364 days before, and 365 days after, the effective date of the transaction.
- A company will be non-resident where it is not UK resident for corporation tax purposes or where the company is UK resident but is a "close company" controlled by a small number of non-UK investors. The latter is intended to stop non-resident investors circumventing the surcharge by simply setting up a UK company buyer. Notably there are exclusions for certain REITs and PAIFs.
Most non-residents (and certain rental sector investors in particular) should therefore aim to complete any pending residential property purchases before 1 April 2021, given the double benefit of both the temporary SDLT holiday and the 2% surcharge not yet applying.