Enveloping of High Value Residential Properties – some of the detail

As noted below, the Chancellor announced a new 15% SDLT charge on the acquisition of UK residential property by “non-natural persons” where the consideration exceeds £2 million.  The details published today explain that the charge applies to transactions which have an effective date (i.e. were completed or substantially performed) on or after 21 March 2012.

Transitional rules will exclude transfers where the contract was “completed” and signed by all parties to the transaction on or before 21 March 2012. It is unclear whether the reference to “completed” means that the transfer of the property must have taken place on or before 21 March 2012 or simply that the contract must have been “exchanged”.

The Budget notes explain that “non-natural person” will include companies, collective investment schemes (including unit trusts) and partnerships which have a non-natural person as a partner. This definition will catch all of the main types of entity which have traditionally been used to hold UK property.

The new charge will not apply to property developers and corporate trustees, but we do not have any details on the scope of these exceptions. It is unclear whether the following reliefs will apply to the new charge:

  • bulk purchaser relief which was introduced in last year’s budget; and
  • the rule that the acquisition of six or more residential properties is treated as the acquisition of commercial property (and so subject to a lower top rate of SDLT).

The full impact of the new charge will not be fully known until the draft legislation is published in Finance Bill 2012 on 29 March 2012.

2 thoughts on “Enveloping of High Value Residential Properties – some of the detail”

  1. Do you consider that the Budget Resolutions continue to exclude nominee companies in bare trusts as a chargeable company for the new 15% sdlt ?

    1. James

      The relevant Budget resolution refers to “a company acting in its capacity as trustee of a settlement.” As to the meaning of settlement it is necessary to turn to paragraph 1 of schedule 16, FA 2003 which states that a settlement means a trust that is not a bare trust, namely where property is held by a person as trustee for a person absolutely entitled or who would be so entitled but for being a minor or other person under a disability, or for two or more persons jointly so entitled.

      So at first glance a company holding on bare trust would not be excluded from the charge. But that is a strange result if the company purchaser is holding on bare trust for an individual where an acquisition by the individual would not involve a charge at 15%. The answer I think lies in paragraph 3 of schedule 16. This provides for the SDLT rules to apply in the case of an acquisition of a chargeable interest as trustee as if the interest were vested in and the acts of the trustee in relation to it were the acts of the person or persons for whom he is trustee. So if the company is acting on behalf of an individual I would expect the schedule 16 “look-through” to apply and hence no 15% charge arises.

      If this is correct then there remains the problem of lease grants. Paragraph 3(2) states that the trustee look-through rule does not apply in relation to the grant of a lease, in that scenario the trustee itself is regarded as purchaser. So whether or not the 15% charge applies in your example may depend upon whether or not the trustee is acquiring an existing interest (whether leasehold or freehold) or accepting a new lease grant. Looking at the Finance Bill this seems to be addressed by turning off the deeming in relation to lease grants so that there should be no difference.

      Hopefully these issues will become clearer over the next few weeks as HMRC engage with practitioners.

      Graham

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