In the 2012 Budget, the Government announced various measures to discourage the use of “corporate envelopes” to hold high value UK residential real estate. These measures included a 15% rate of SDLT, introduced with effect from 21 March 2012, for acquisitions of residential real estate by certain “non-natural persons” (including companies) for consideration exceeding £2 million.
In his recent Autumn Statement, the Chancellor announced that, with effect from Royal Assent of the Finance Bill 2013, several new or extended exemptions from the 15% rate of SDLT will apply to ensure that that genuine property businesses remain subject to generally applicable top rate of SDLT of 7%.
The most significant new exemptions applies where high-value residential real estate is acquired for the purposes of a property rental business, although other exemptions will apply where such real estate is acquired for the purpose of a property trade, to be made available for public use or enjoyment, for use by employees and as a farmhouse for occupation by farm workers.
The redrafted exemption for property developers does not require the developer to have an existing two year trading record and so will apply to newly established property developers. The exemption will also apply where a property developer acquires a high-value residential real estate in exchange for a newly constructed or converted residential property.
Detailed conditions apply to ensure the exemptions are only available where the real estate is genuinely used for the relevant commercial purpose (e.g. for the most part the exceptions will not be available if the real estate is occupied by an individual connected with the purchaser). Relief will in some circumstances be clawed back (i.e. additional SDLT will become payable) if the conditions for relief cease to be met within the three years following the acquisition, otherwise than as a result of an unforeseen change of circumstances beyond the purchaser’s control.
The Government seems to have taken into account the extensive representations made following the introduction of the 15% charge. However, the new exemptions, which are designed to ensure the 15% charge will not inhibit genuine commercial activity, will only apply to acquisitions made after the date the Finance Bill 2013 receives Royal Assent. Given the 15% charge was introduced with immediate effect in March 2012 with no consultation it seems strange that the Government has decided not introduce the exemptions with retrospective effect from March 2012 or at least from the date they were announced in the Autumn Statement. Businesses which are able to delay acquisitions until the new exemptions comes into force may be able to reduce their SDLT bill by more than half.