The real estate sector has been one of the hardest hit by the coronavirus pandemic. The government has sought to get the housing market back on its feet by announcing a Stamp Duty Land Tax (SDLT) holiday on residential property in England and Northern Ireland up to £500,000 with a similar holiday announced by the devolved administrations in Scotland and Wales.
Alongside the support for the housing market, there have been other developments for the sector. These include a new 2% SDLT surcharge from 1 April 2021 for buyers of residential property in England and Northern Ireland who are not resident in the United Kingdom and a new relief for certain housing co-operatives from the Annual Tax on Enveloped Dwellings (ATED) and the 15% rate of SDLT.
Land tax holidays
As announced in the Chancellor's economic statement on 8 July 2020 (see our previous Insight here) the government has temporarily increased the nil rate band of SDLT for residential properties in England and Northern Ireland from £125,000 to £500,000, which applies from 8 July 2020 until 31 March 2021. The bill which gave effect to these measures received Royal Assent on 22 July 2020 and became the Stamp Duty Land Tax (Temporary Relief) Act 2020.
The 3% surcharge for acquisitions of additional residential property still remains - resulting in a rate of 3% for the purchase of additional dwellings up to £500,000. However, this effectively means a reduction in the rate of SDLT for additional properties as well (as previously SDLT would have been paid at a rate of 5% on the value between £125,001 - £250,000 and 8% on the value from £250,001 - £925,000). Where the surcharge applies, the benefit of such reduction should flow through into claims for multiple dwellings relief and result in the 3% rate applying where the average dwelling price is up to £500,000.
Similar holidays for Land and Buildings Transaction Tax for residential property transactions in Scotland and Land Transaction Tax in Wales have also been implemented. In Scotland there will be a temporary increase in the nil rate band from £145,000 to £250,000 which takes effect from Wednesday 15 July 2020 and will remain in place until 31 March 2021. In Wales, the nil rate band for main rate residential transactions will increase from £180,000 to £250,000 and will apply from 27 July 2020 until 31 March 2021. The additional surcharge levied for acquisitions of additional residential property (which is currently 4% in Scotland and 3% in Wales) also still remains.
SDLT surcharge for non-residents
In keeping with the government's timetable for making legislation, draft clauses for the Finance Bill 2021 were published on 21 July for consultation. These included the long-heralded (and consulted upon) measure to introduce a 2% SDLT surcharge from 1 April 2021 for buyers of residential property in England and Northern Ireland who are not resident in the United Kingdom. A consultation on the draft legislation will run until 12th September and the final legislation will be included in the Finance Bill 2021, which is expected to be published in the autumn (following the Budget).
The new surcharge will affect not only non-resident individuals but also non-resident companies, close companies who are controlled by non-residents, trusts and partnerships. This means that non-residents acquiring residential properties in England and Northern Ireland through a vehicle will also be subject to the surcharge.
Relief for housing co-operatives
On 21 July, the government also published draft clauses to introduce new reliefs from the ATED and the 15% rate of SDLT for certain housing co-operatives.
The measure will come into effect retrospectively from 1 April 2020 for ATED, as well as allowing eligible housing co-operatives to claim an ATED refund for the 2020-21 chargeable period. In respect of the 15% flat rate of SDLT, the measure will come into effect for transactions with an effective date (usually the date of completion) on or after Autumn Budget Day 2020 for residential properties located in England and Northern Ireland.
Osborne Clarke comment
The SDLT holiday should bring a welcome boost to the residential property market, both for first time buyers and for others moving up the ladder. The knock-on effect of the increase in the nil-rate band for the SDLT surcharge for additional residential property should also reduce the amount of SDLT payable on residential property acquisitions and potentially give rise to a benefit for those who claim multiple dwellings relief on portfolio acquisitions.
The introduction of the non-resident surcharge which has been in the pipeline for two and a half years comes of no surprise but combined with SDLT holiday it may lead to a property surge for non-residents prior to its introduction on 1 April 2021.
If you would like to discuss further any the SDLT changes then please speak to one of the contacts listed below.