Batten down the hatches – shock taxes on residential property are here to stay, says Ed Burton
In recent years, those in the property industry have awaited set piece speeches from the Chancellor with a certain amount of trepidation given the taxation rabbits that are very often pulled out of the hat. This Autumn Statement was no different heralding significant changes to both stamp duty land tax (SDLT), which is the key transaction tax payable on purchase, and the annual tax on enveloped dwellings (ATED), which is a tax payable in some circumstances on residential property held by 'non-natural' persons, largely companies.’
The announcement of the new land and buildings transaction tax in Scotland to replace SDLT from next April had led some (including me) to wonder whether this re-formulation of transactional property tax may drift southwards as has happened. It could be that greater attention should be paid to new Scottish legislation in this area as there is now precedent for Scottish experiments to be adopted south of the border although many are possibly hoping that the SNP's land reform proposals remain behind Hadrian's Wall.
The changes to SDLT were to remove the 'slab' whereby the whole of the purchase price is taxed at one percentage figure and replace it with a system where the purchase price is apportioned between the different percentage bands which are set out below, i.e. the first ’125,000 is taxed at 0 per cent, the next ’125,000 at 2 per cent and so on.
On the plus side the new system has removed the hated 'slab' and if you are buying below ’937,000 then SDLT is unchanged or less which is excellent news for the 97 odd per cent of transactions below this level. For purchases above this level, significant increases are the order of the day with considerable increases at higher levels.’
There was some initial shock at these changes as they were so unexpected. However, it is important to remember that SDLT remains a one-off tax payable at the point of purchase and not on an ongoing basis. There was some discussion by commentators as to whether this change had removed the need for a mansion tax which would be a welcome development although early indications seem to be that Labour remains wedded to this idea.’
Given the large increases to SDLT at the higher end, some have wondered whether this may see purchasers looking to acquire companies holding property (as is common in the commercial property sector) rather than assets themselves. The government seems to have pre-empted this by announcing large increases to the ATED bands (in the region of a ’75,000 increase year on year for the most valuable property worth more than ’20 million) to presumably deter corporate ownership of residential property and also potentially to serve as a warning that government is willing to levy arbitrary increases in ATED to reduce the attractiveness of corporate ownership.’
What is clear is that the endless tinkering with the taxation of residential property is still very much in vogue and that the next time a Chancellor takes to the lectern, practitioners should brace themselves for the unexpected.’
Edward Burton is an associate and specialises in property at boutique private wealth law firm Maurice Turnor Gardner.